Why Doesn’t the Minimum Wage Affect Employment of Fast-Food Industry in New Jersey and Pennsylvania In 1992?

Why Doesn’t the Minimum Wage Affect Employment of Fast-Food Industry in New Jersey and Pennsylvania In 1992?

Introduction

Minimum wage is the least hourly or monthly pay that legal requirements demand employers to pay their workers or laborers. Trade unions in most countries are always in forefront in demanding an increment in the floor wage towards improving the welfare of workers. Laborers in various industries go to strike often to demand a better payment for their services. However, adjustments in this lowest wages may not have serious repercussions in the relevant economies. Does raising minimum pay of workers impact employment and in turn the economy?

Raising minimum wage for labor is a boost to the economy. The workers are advantaged to get an increase on their initial earnings hence improving their living standards. In almost all instances where wage pay for workers has been increased in various countries of the world, employment levels remain unaltered defying the notion in most economists that adjusting minimum wage rate impacts employment. There is clear evidence from past research as from 1990s that a rise in minimum labor pay hardly affect employment.

Rising of the minimum wage does not necessarily cost people their jobs (causing unemployment) and evidence suggests it does not cost jobs in practice. Demand and supply diagrams do not substantially give a description of the labor market. Employers also have the power to manipulate the market hence they are able to escape with paying workers lower than their worth. Considering this, there is a possibility for upward adjustment of least worker pay without injuring employment levels.

This study sets out to find how minimum wage adjustment will affect employment. A case scenario is New Jersey and Pennsylvania. The latter would be used as a control group since it had no floor-wage increase resolution. About three decades ago, a resolution was passed to increase the least salaries employers ought to pay their employees. This gave New Jersey eyes from all over the world waiting to see the results of this decision. An insight into the performance of fast-food businesses after the resolution would enable understand the real effect of the adjustment.

Minimum wage rise in the New Jersey – 1992

In April of 1992, it was passed that the minimal wage in New Jersey be increased from $4.25 per hour rate to a considerably high rate of $5.05 per hour. The increase was sequential; there was a federal increment of minimum wage from $3.35/hr. to $3.80/hr. that was effected in the April of 1990, a further increment to $4.25/hr. in the April of 1991, and finally a state increment to $5.05/hr. in 1992. The rate made effective in 1992 made New Jersey the state paying the highest minimum wage in the United States of America. This is the same period when most countries in the world were struggling with economic recession that really dragged behind their economies. The case scenario presented on these states show a significant evidence to suggest almost zero effect of minimum wage on employment.Several industries stood to be affected hence this study focuses on the fast-food industry (stores and restaurants).

Effect of wage rise on employment of fast-food industry in New Jersey and Pennsylvania

New Jersey has a considerable fast – food industry that has employed a very large populationwhereby fast food stores in New Jersey and Pennsylvania were the leading employers of the floor-wage workers. This was one of the factors that made the industry the best choice for the study among other factors such as accessibility of information. An inquiry into 410 restaurants in some parts of Pennsylvania and New Jersey after effecting the new floor wage that was carried out, and a simple comparison of the changes in wages paid to workers, prices, and employment would show the effects of interfering with the floor wage (Card and Krueger 4).

There was a similarity of wages paid to workers in the two states after effecting the new floor wage although prices of meals and drinks were relatively higher in New Jersey. Number of hours of operation and proportion of full-time employees in the used restaurants did not show a big difference between the two states. Interpretation of results, therefore, was not expected to have any mix-up since the exercise was done as if the restaurants operated in one state.

Initially, stores in New Jersey were smaller as compared to those in Pennsylvania but grew at a higher rate relative to their similitudes in the latter state. In New Jersey, there was a slight improvement or expansion of employment at the low-wage restaurants and stores, and a reduction in high-wage restaurants. The high-wage stores were already paying their workers a rate (above $5.05 per hour) more than the one effected in 1992, by the state. According to Card and Krueger, the initially high-wage stores recorded good results since they continued operations normally regardless change of minimal wage laws; and in fact, these stores recorded improved employment of the same rate as their counterparts in Pennsylvania, which was used as a control for comparison (16). Statistical models show a positive trend in the fast-food stores hence ruling out the debate that minimum wage negatively impact employment because if it was the case there would have been clear evidence of deterioration in provision of services by the store already paying high wages (above $5.05/hr.).

Another area that the two states stood to lose in the fast-food industry besides expected reduction of employment level was in the prices of foods. An example of a meal used here is a basic combination of fries, a soda and hamburger. Economic models in such a situation would show a relatively equal increase in prices of food to match the wage rate. After the surveys conducted, analysis of results showed that food prices rose by almost 4% faster in New Jersey after the effect of minimum-wage increment. However, there were minor inconsistencies in price changes whereby meal prices rose at estimated same rate but different initial wage rate. In fact, the study concluded that the results obtained in the survey rendered mixed prove that increment of minimum wage lead to increased food prices. given New Jersey’s situation at that time and possible consequences of recession, there would have been inflated prices of food but since it merely never happened, it is clear evidence that minimum wage does not affect food prices and consequently employment rate.

The research sought to find out the effect of floor-wage to employment. However, the fact that the increment might have impact on opening new businesses (restaurants and stores) cannot be just left out. This study, therefore, extended to find out the possible effect of the wage rise on store opening. This was done based on historical record of some businesses and how they used to expand through new branches given changing levels of minimal wage. The analysis of results collected showed no prove that wage rate affect restaurant number or opening of new outlets and to the contrary, it had a positive impact. The study then reasoned out that effects of floor-wage increase were almost zero (Card and Krueger 13).

The stance of economic models (Conventionalstudies)

This is opposes a study by D. Card and A. Krueger that minimum wage does not impact employment. Conventionally, when workers’ minimum wage is increased, it would lead to pressure on employers since they would be paying more to employees. This means that they would have to cut down the increased wages by reducing the workforce. This literally means firing some employees rendering them jobless. This explains the common view that the wage increase will automatically lead to increased unemployment that cripples the economy in the long run.

The same explanation applies to prices of goods in the industries where employees’ minimum wages are increased. Here, more money will be required to pay workers and it is from sales that employers will get the money to pay out salaries and wages. Businesses, therefore, will be forced to increase the selling costs to meet the high wage rate and maintain their profit margins.

There are clear discrepancies here between conventional studies and the study D. Card and A. Krueger. One party gives argument for increase in minimum wage rate and the other argues against. However, based on practical terms as seen through D. Card and A. Krueger’s research, a person can go along with his/her idea.

Conclusion

In my view, mere conventions and theories cannot explain and help run the wheels of the economy. D. Card and A. Krueger took a significant step to unravel the common notion in most peoples’ minds, which is actually a myth. Their research is real to defy common view that increased minimum wage rate has adverse effects on the economy by resulting to increased unemployment.

Besides research by D. Card and A. Krueger in the 1990s, a famous paper in the United States also sought to find the effect of increasing minimum pay with a study of more than 250 restaurants from close counties that paid varying amount of salaries to their employees. They, as well, concluded that floor-wage boosts pay without affecting employment (“The evidence is clear: increasing the minimum wage doesn’t cost jobs | Dave Oliver | Comment is free | The Guardian”).

It is not only in the U.S that it has been evidenced that minimum pay has almost zero effect on employment. In the U.K, research has shown the same thing. The British government cautiously brought in the use of floor wage in the year 1999. The introduction made the government worry about the possible repercussions of the move but this was not to happen. The U.K now brags about tremendous success regarding wage rate especially now that the floor-wage is 75 percent higher than the introduction rate (“The evidence is clear: increasing the minimum wage doesn’t cost jobs | Dave Oliver | Comment is free | The Guardian”)

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Most of the time employers claim that increasing their workers’ earnings will result in unemployment. Evidences accumulated over the recent decades and even the one presented herein, all have the view that increasing worker floor wage has no effect in employment. Who tells the truth in this case? Let the researches done on different fields by scholars on the issue guide people so that the economy can prosper.

The argument against increasing pay for workers is a mere technique of employers to keep employees at the least possible pay and in turn reap huge profits ignoring their welfare. They want to keep a large share of what they make not considering the people who make it for them. Workers have the right to reap wages proportionate to their work hence a review of their pay in various economies of the world is a fair deal.

 

Works Cited

Card, David E, and Alan B. Krueger. A Reanalysis of the Effect of the New Jersey Minimum Wage Increase on the Fast-Food Industry with Representative Payroll Data. Cambridge: National Bureau of Economic Research, 1998. Print.

Card, David E, and Alan B. Krueger. Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania. Cambridge: National Bureau of Economic Research, 1993. Print.

“The evidence is clear: increasing the minimum wage doesn’t cost jobs | Dave Oliver | Comment is free | The Guardian.” N.p., Web. <http://www.theguardian.com/commentisfree/2014/jun/11/the-evidence-is-clear-increasing-the-minimum-wage-doesnt-cause-unemployment>.