ECON 0858 Issue Paper #1 22718 Student Name .docx

ECON 0858
Issue Paper #1
2/27/18
Student Name
(1) Position Statement Topic: Minimum Wage Laws
(2) Minimum wage laws have been debated as a chief topic
among legislators and economists alike,
especially recently with Bernie Sander’s proclamation that it
should be set to $15/hour. A higher
minimum wage can stifle the growth of small businesses, and
affect millions by increasing
unemployment for unskilled workers, while a lower minimum
wage may contribute to increased
poverty or a poor standard of living for some. Under President
Trump’s new tax plan, decreased
income tax rates for consumers allows them to spend more
money, which in turn will help small
businesses, who also reap the benefits of a reduced corporate
tax and capital gains tax. Because
these changes may spur a growth in economic activity going

forward, the current federal
minimum wage of $7.25/hour should not be increased nor
decreased in order to properly assess
the effects of Trump’s plan. Moreover, all 50 states should
adhere to the minimum wage in order
to properly assess its economic impact on the U.S. as a whole.
(3) Economic Arguments Against My Position:
a. An increased minimum wage allows unskilled workers to
contribute more to the
economy.
i. If workers earning the current minimum wage can take home
more money, they
are inclined to spend that money and contribute to small
businesses and help
boost economic activity.
ii. Since 2012, the Fight for $15 movement helped low-wage
workers gain $61.5
billion in annual raises through state and local minimum wage
increases
(National Employment, 2016).
b. An elimination of the minimum wage will spur economic
growth and create new jobs.

i. A minimum wage must be set above the equilibrium price of
labor in order to
take effect, and its effects are seen through the U.S.’s
unemployment rates.
ii. In 2015, unemployment averaged 5.26%, implying that those
who were
unemployed could have been employed in unskilled jobs if
firms could afford to
hire them (Bureau, 2016).
1. Lost gains from labor trade create a need for the unemployed
to enroll in
government welfare programs, with 6.2 million Americans
receiving $32
billion in unemployment compensation in 2016 (United States,
2018).
2. Low-wage workers receive retarded wage growth when there
is a small
increase in the minimum wage, compared to if there was no
increase
(Lopresti, 2015).
iii. Companies that outsource production will bring
manufacturing back to the U.S.,

creating jobs and utilizing land more efficiently.
1. Foreign-owned firms in Mexico and Venezuela pay workers
more than
their domestically-owned counterparts, which suggests that
those firms
(including those owned by U.S. entrepreneurs) that outsource
pay foreign
workers below the U.S. minimum wage but above the domestic
minimum wage, if there is one (Aitken, 1995).
2. If there was no minimum wage, American companies would
be
incentivized to invest in domestic manufacturing due to lower
labor costs
and recently decreased taxes on corporate income and capital
gains.
3. In Mexico, the minimum wage of 88 pesos is equal to $4.67
USD.
c. Trump’s tax plan will shift money from the working class to
the upper class in due time,
which calls for an increased minimum wage to compensate.
i. The tax cuts for the middle class are temporary while the
corporate tax cuts are
permanent, which suggests that upon expiration, the middle

class may face the
tax burden to compensate for an increased deficit.
ii. The elimination of personal exemptions for families with lots
of children may
reduce their income (Finance Wire, 2017).
iii. Decreased corporate taxes will see the top fifth of the U.S.
receive 70% of the
benefits, with 34% going toward the top 1% (Center, 2017).
iv. An increased minimum wage would shift the benefits from
the top earners in the
U.S. to the working class, who in turn will increase their
income which will
increase the demand for goods and services.
(4) Economic arguments for my position
a. The current minimum wage is low enough that it incentivizes
workers to earn promotions
or educate themselves to receive better wages.
i. Only 1.8% of U.S. workers earn the minimum wage or lower,
which implies that
the vast majority of workers are skilled or educated enough to
earn a higher wage
(Bureau, 2018).

1. 98.2% of U.S. workers do not want to supply labor at the
price set by the
minimum wage because they acquire skills or education in order
to earn
a higher income.
ii. Many minimum wage jobs are temporary or age-sensitive,
allowing teenagers
and college students to earn money and experience while they
acquire an
education.
b. The black market for labor created by the minimum wage
makes up for lost gains from
trade, which helps small businesses and workers.
i. Small businesses, such as pizza shops and family-owned
stores, pay workers less
than the minimum wage to reduce the sunk cost of the price
floor.
1. This reduces unemployment for unskilled workers, who are
the designed
beneficiaries of the minimum wage law.
ii. A worker earning $7.25 an hour working full-time will take

home roughly $6.20
per hour before entering the next tax bracket (which would
decrease take-home
pay) (SmartAsset, 2018).
1. By comparison, a worker earning $6.50 under the table will
have a
greater take-home income while the firm will reduce its cost of
labor,
resulting in a gain from the trade.
c. Trump’s tax cuts will allow small businesses to easily access
financing for capital,
inventory, and expansion, which will create more jobs without
decreasing the minimum
wage.
i. American Samoa, which is not subject to the federal minimum
wage, saw
cannery employment (which accounts for 14% of the workforce)
decrease by
50% upon a minimum wage increase for cannery workers
(Government, 2016).
1. Those in the cannery industry cited labor costs as a main
challenge, with
one of the two canneries in the region indefinitely suspending

operations
in 2016.
2. Trump’s tax plan counterbalances the current minimum wage
by
decreasing corporate and capital gains taxes, allowing for
growth.
ii. Trump’s plan echoes those of John F. Kennedy and Ronald
Reagan, both of
whom implemented policies that created job growth.
1. Kennedy’s tax proposals, including slashing investment taxes
on
businesses, were followed by 5% annual growth for 8 years
following his
death.
2. Reagan cut the corporate tax from 70% to 28%, which was
followed by
4-5% annual growth for 25 years (Kudlow, 2016).
3. Under Trump’s most recent proposal, businesses with more
than 50
employees will no longer be required to pay the ACA-mandated
fine per

employee, potentially saving small businesses tens of thousands
of
dollars (Armour, 2018).
d. An arbitrary minimum wage established by the federal
government transfers rights from
state governments to business owners, who will benefit from
loosened restrictions on
what to pay workers.
i. States like New York, which will see a minimum wage
increase to $15 by 2019,
would instead be able to elect to pay its workers $15, or the
minimum wage, or
somewhere in between in order to allow businesses to survive.
ii. When New Jersey raised its minimum wage in the 1990s,
low-income jobs like
fast food service no saw upward or downward trend in
employment.
1. The same trend was observed in Pennsylvania at the same
time despite
having a lower and unchanged minimum wage, which suggests
that other
economic factors may affect unemployment besides wage laws
(Card,

1994).
iii. The required country-wide minimum would incentivize
states to seek minimum
wage alternatives that are more efficient, such as Earned income
tax credits
(EITCs).
1. EITCs directly assist those who work part-time earning the
minimum
wage, which alleviates poverty and unemployment.
a. EITCs structurally target low-income families in need, which
make it more effective than the minimum wage.
b. Subsidizing labor market earnings incentivizes those in need
(like single mothers) to enter the labor force, while reducing
labor costs for employers, thus alleviating poverty and
unemployment while promoting economic growth (Neumark,
2015).
2. In 2007 (the last time the federal minimum wage increased),
of the
reported $11 billion in increased incomes, only $1.6 billion
went to poor
families, the main targets of the minimum wage (Smith, 2013).

a. By comparison, $2.4 billion of EITCs saw $1.4 billion go to
poor
families, a success rate of 58.3% compared to the minimum
wage’s 14.5% (Smith, 2013).
(5) Conclusion
The minimum wage has its place in society because there is a
general, ethical belief that no
hardworking individual should live in poverty. The minimum
wage’s side effects are numerous,
but the benefits and supplementary measures (EITCs, black
market labor) to address the issue of
poverty create a diversified system where poverty becomes
marginal. I find black market labor
interesting because it exists only to the extent that it can: if
every firm employed people illegally,
then the government would notice and take action. I was unable
to find any legitimate statistics
on illegal labor, so my assumption is that under-the-table jobs
mainly exist in companies that
have enough employees to hide it from the IRS. In regards to
President Trump’s tax plan, it

promotes supply-side economics that sometimes yield statistical
results without practical results
that benefit those in need. In order to fully assess Trump’s plan,
the minimum wage should stay at
$7.25 and be strictly enforced throughout the country because it
allows two things: a fair
assessment of Trump’s economic policy, which certainly
deviates from former President
Obama’s; and a less restricted entrepreneurial environment to
complement the policy. A federally
increased minimum wage would likely create unemployment
that would stifle the anticipated
progress of Trump’s plan, while a decreased or abolished
minimum wage would, in the short run,
reduce wages and raise poverty levels, which creates a tangible
and external cost to society
through increased spending on welfare programs and heightened
crime rates. It will be interesting
to assess the economic effects of New York’s minimum wage
increase to $15 in due time,
because then we will find out, to a certain extent, whether or
not the Fight for $15 movement
actually holds economic validity under Trump’s plan. If so,
perhaps my suggestions are

theoretically flawed and the U.S. will move forward with a
massive increase in minimum wage.
Works Cited
Aitken, B., Harrison, A., & Lipsey, R. E. (1995, October 1).
Wages and foreign ownership: A comparative
study of Mexico, Venezuela, and the United States. Retrieved
February 27, 2018. Retrieved from
https://www.sciencedirect.com/science/article/pii/00221996950
14101?via%3Dihub
This article was exactly what I was looking for when I looked
for comparative data on wages paid
to foreign-owned companies. It was very focused, but I
managed to find some information that
was useful.
Armour, S. (2018, Jan 04). Trump administration proposal
would exempt small businesses from some

ACA rules; plan would allow insurance coverage that doesn't
include law's mandatory
benefits. Wall Street Journal (Online) Retrieved February 28,
2018.
I used this source to reinforce my assertion that Trump’s tax
plan would help small businesses.
Bureau of Labor Statistics. (2016, April). Characteristics of
minimum wage workers, 2015. Retrieved
https://www.bls.gov/opub/reports/minimum-
wage/2015/home.htm
The BLS is a government entity so I consider it a reliable
source for statistics.
Bureau of Labor Statistics. (2018). Labor Force Statistics from
the Current Population Survey. Retrieved
https://data.bls.gov/timeseries/LNS14000000
I usually use the BLS for any papers that require statistics to
back up claims. The BLS is a
government entity so I consider it reliable.
Card, D., & Krueger, A. B. (1994). Minimum Wages and
Employment: A Case Study of the Fast-Food
Industry in New Jersey and Pennsylvania. The American

Economic Review, 84(4), 788-792.
Berkeley Library. Retrieved February 28, 2018. Retrieved from
http://www.nber.org/papers/w4509
I used this article because it concluded that a raised minimum
wage may not affect
unemployment as much as some people believe. I needed this
information in order to suggest
that keeping the minimum wage at its current level is feasible
because other economic factors
may affect unemployment.
Center on Budget and Policy Priorities. (2017, October 23).
Corporate Tax Cuts Mainly Benefit
Shareholders and CEOs, Not Workers. Retrieved February 27,
2018. Retrieved from
https://www.cbpp.org/research/federal-tax/corporate-tax-cuts-
mainly-benefit-shareholders-
and-ceos-not-workers
I used this source because I needed a reliable source to indicate
that tax cuts to the wealthy hurt
the middle class. This would help me support my assertions in
the “arguments against my
position” section.

Finance Wire, & Lanham. (2017, April 26). Pres. Trump's Tax
Cut Plan; Trump Tax Plan: Repeal Death Tax
And Alternative Minimum Tax; Trump Tax Plan: Eliminate Tax
Breaks For Special. Retrieved
https://www.sciencedirect.com/science/article/pii/00221996950
14101?via%3Dihub
wage/2015/home.htm
wage/2015/home.htm
https://data.bls.gov/timeseries/LNS14000000
http://www.nber.org/papers/w4509
mainly-benefit-shareholders-and-ceos-not-workers
mainly-benefit-shareholders-and-ceos-not-workers
https://search.proquest.com/econlit/docview/1892444065/75AF
A3B57E07437APQ/3?accounti
d=14270
I was excited to find articles through the Paley database that
discussed Trump’s tax plan
because I thought the news was too recent to see these articles
make it onto an academic
database. I used this source because it discussed my topic and it
was found through Proquest.

Government Accountability Office. (2016, December).
Alternatives for Raising Minimum Wages to Keep
Pace with the Cost of Living and Reach the Federal Level.
Retrieved February 28, 2018. Retrieved
from
http://web.a.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=5&s
id=20e094d0-620c-
4300-b82b-ad6892ea20bb%40sessionmgr4007
NOTE: The link I provide should immediately prompt a PDF
download to view the article. I found
this information useful because I could link American territories
to loosened minimum wage
laws to assess the effects.
Kudlow, L. (2016, September 17). Lawrence Kudlow: Tax Cuts,
King Dollar and Growth: From JFK to
Reagan to Trump. Investors Business Daily. Retrieved February
28, 2018.
This was a good source for comparing previous supply-side
policies to the current one to project
the economic impact of Trump’s plan. This article seemed
biased but I found it through
Proquest, so the person’s assertions were likely grounded in fact
or expertise.
Lopresti, J. W., & Mumford, K. J. (2015). Who Benefits from a

Minimum Wage Increase? Retrieved
https://search.proquest.com/econlit/docview/1684397764/12B33
002BE8B44D7PQ/1?accounti
d=14270
I used this paper for two reasons. First, because it would go
toward fulfilling my Paley database
quota (which I ended up exceeding to my own surprise, since
articles on Google tend to be
opinionated). Second, because it supported the idea that
minimum wage increases are
associated with poor results for those intended to benefit from
the increases, and it used data
from 2005-2008 to support it. Most articles that support that
minimum wage increases result in
unemployment use data from the 1900s.
National Employment Law Project. (2016, December). Fight for
$15: Four Years, $62 Billion. Retrieved
https://www.pbs.org/newshour/economy/column-
minimum-wage-lowers-employment-teens-low-skill-workers
NOTE: I could not find a link to the report directly, so I used a
PBS article that contains a link in

the first sentence (the word “report” is hyperlinked to the report
I cited). I chose this source
because I was looking for research-related validity regarding
the economic benefits of a $15
minimum wage. The report is vague regarding its methodology
but it is considered legitimate
enough to receive attention from a broadcast outlet such as PBS,
which I felt was valid.
Neumark, D. (2015, December 28). Reducing Poverty via
Minimum Wages, Alternatives. Federal Reserve
Bank of San Francisco Economic Research. Retrieved February
28, 2018. Retrieved from
http://web.a.ebscohost.com/ehost/detail/detail?vid=8&sid=20e0
94d0-620c-4300-b82b-
A3B57E07437APQ/3?accountid=14270
A3B57E07437APQ/3?accountid=14270
id=20e094d0-620c-4300-b82b-
ad6892ea20bb%40sessionmgr4007
id=20e094d0-620c-4300-b82b-
ad6892ea20bb%40sessionmgr4007
002BE8B44D7PQ/1?accountid=14270
002BE8B44D7PQ/1?accountid=14270

https://www.pbs.org/newshour/economy/column-minimum-
wage-lowers-employment-teens-low-skill-workers
https://www.pbs.org/newshour/economy/column-minimum-
wage-lowers-employment-teens-low-skill-workers
94d0-620c-4300-b82b-
ad6892ea20bb%40sessionmgr4007&bdata=JnNpdGU9ZWhvc3Q
tbGl2ZSZzY29wZT1zaXRl#AN=112004119&db=bth
tbGl2ZSZzY29wZT1zaXRl#AN=1
12004119&db=bth
This was probably the best article I found because it laid out
the purpose and effects of EITCs
with statistics to back it up. I happily used those statistics in my
argument for my position.
SmartAsset. (2018). Pennsylvania Paycheck Calculator.
Retrieved February 27, 2018. Retrieved from
https://smartasset.com/taxes/pennsylvania-paycheck-
calculator#U5U5dbGPSc
I used this calculator to estimate the take-home pay of a person
working full-time earning the
minimum wage in order to compare the earnings with someone
who works under the table. I
was not sure if I should cite it or not so I did it anyway.
Smith, S. (2013, April). An alternative to the minimum wage.

Restaurant Business. p. 8. Retrieved
http://web.a.ebscohost.com/ehost/detail/detail?vid=10&sid=20e
094d0-620c-4300-b82b-
tbGl2ZSZzY29wZT1zaXRl#AN=8
6718186&db=bth
I used this article to reinforce the previous article’s assertion
that EITCs are a more effective way
of alleviating poverty than the minimum wage.
United States Department of Labor. (2018, February 26).
Unemployment Insurance Data. Retrieved
https://workforcesecurity.doleta.gov/unemploy/DataDashboard.a
sp
As with the BLS, I use the Department of Labor for any
information I can. This page has the most
up-to-date information that I can find usually.
Grade: 30/30
COMMENTS: The student makes strong arguments to support
and oppose his/her

stated position. These arguments are made using a variety of
high quality
resources on economic topics. Furthermore, economic theory on
the minimum
wage and taxes that was covered in class is incorporated into
the outline.
94d0-620c-4300-b82b-
94d0-620c-4300-b82b-
https://smartasset.com/taxes/pennsylvania-paycheck-
calculator#U5U5dbGPSc
094d0-620c-4300-b82b-
094d0-620c-4300-b82b-
094d0-620c-4300-b82b-
https://workforcesecurity.doleta.gov/unemploy/DataDashboard.a
spECON 0858Issue Paper #1Works CitedGrade: 30/30

ECON 0858 Issue Paper #1 22718 Student Name .docx

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