ECON 003 – Case Study Analysis

Submitted by: Dyana M. Forescal

You’re The Economist, Does Raising the Minimum Wage Help the Working Poor?
Applicable Concepts: positive and normative analyses.
ANALYZE THE ISSUE
1. Identify two positive and two normative statements given above concerning raising
the minimum wage. List other minimum-wage arguments not discussed in this you’re
the Economist, and classify them as either positive or normative economics.
2. Give a positive and a normative argument why a business leader would oppose
raising the minimum wage. Give a positive and a normative argument why a labour
leader would favour raising the minimum wage.
3. Explain your position on this issue. Identify positive and normative reasons for your
decision. Are there alternative ways to aid the working poor?

Answer:
Positive vs. normative is the difference between a debate about what 'is' vs. what 'ought
to be. A positive debate describes how the world is or is not. A normative debate argues
about how the world should be or should not be. Another way to put it: it's physics
versus philosophy. How does the world mechanically function, how do parts of the world
interact, what forces are at play and what do they do, if action x occurs what is the
natural reaction to it?;
versus: what's right and what's wrong, what is just or unjust, is it right or wrong that
these forces are at play, if action x occurs, should we simply accept the natural reaction
or try to intervene and improve the reaction, what constitutes an improvement?
There’s no law in place saying they have to, and no protestors boycott their stores in an
attempt to bully them into it. No, these stores made the decision on their own.
But why would a business choose to pay its workers more? There are a lot of reasons,
according to Chris Sommers, co-founder of Pi Pizzerias and Gringo Mexican restaurant.
Sommers recently raised his workers’ minimum wages to $10.10/hour and wrote an
opinion piece that ended up on the Department of Labor’s blog. Sommers argues that
one big reason is that business can help create more jobs.
"Business owners don’t create more jobs when they have more money in their own
pockets," he writes. "We create more jobs when other people have more money in their
pockets to spend at our businesses.”
Okay, that argument has been made before. But Sommers continues, calling out three
key benefits that balance increased payroll costs.
Reduced employee turnover rates
Employees who can make ends meet stay longer, are less stressed, and are more
productive. High employee turnover costs businesses time and money in recruiting and
training new workers.
The example Sommers gave: “We spend more than $500 training a new line cook. We
threw away thousands of dollars in product a year due to inexperienced employees
preparing it improperly. Eliminating just a portion of these expenses pays for increased
minimum wages.”
Increased productivity
The higher wages gave Sommers’ employees a morale boost and increased their
loyalty.
“It’s a win-win when employees can concentrate on serving customers, without worrying
about how they are going to make rent or put food on their own table,” he says.
Greater customer satisfaction
“Our more experienced teams take better care of our guests,” says Sommers. “We’ve
gained many new customers who have written us notes telling us how grateful they are
that we treat our employees fairly. Those guests are visiting our business more
frequently, further contributing to our bottom line.”
Sommers isn’t alone in thinking we should raise the minimum wage. A June 2014
survey found that more than 3 out of 5 small business owners support increasing the
minimum wage to $10.10/hour, saying they believe that a higher minimum wage would
increase consumer purchasing power (58%), help the economy (56%), and benefit their
businesses via lower employee turnover, increased productivity, and customer
satisfaction (53%).
How Raising the Minimum Wage Would Look
The Economic Policy Institute put out a report in August 2012 outlining who would
benefit from an increase in minimum wage, looking at characteristics like gender, age,
race and ethnicity, educational attainment, work hours, family income, and family
composition. It also gave the estimated GDP and job creation impacts that would result
from an increase in the federal minimum wage to $9.80/hour (not $10.10, which would
be proposed by President Obama two years later).
Here’s what they found:
 Increasing the federal minimum wage would raise the wages of about 28 million
workers, who would receive nearly $40 billion in additional wages over the
phase-in period
 GDP would increase by roughly $25 billion during the phase-in period, resulting
in the creation of approximately 100,000 new jobs
  Women comprise nearly 55% of those who would benefit
 Nearly 88% of workers who would benefit are at least 20 years old
 Workers of all races and ethnicities would benefit from the increase; non-
Hispanic white workers comprise the largest share (about 56%) of those who
would be affected
 About 42% of affected workers have at least some college education
 Around 54% of affected workers work full time
 Over 70% are in families with incomes of less than $60,000
 More than a quarter are parents
 Over a third are married
 The average affected worker earns about half of his or her family’s total income
 Fast forward two years to 2014 and Obama’s State of the Union address. After
the address, the White House put together an interactive web page detailing how
raising the minimum wage would positively impact people across America. Some
of the facts it lists include:
 A minimum wage increase would benefit more than 28 million workers across the
country
 19 million workers from all types of households would see a direct increase in
their wages
 The real value of the minimum wage has fallen by nearly one-third since its peak
in 1968; today, a full-time minimum wage worker makes $14,500 a year
Why Businesses Owners Are Against Raising the Minimum Wage
While many business owners are in favour of increasing minimum wage, more are
actually against it. According to a 2013 Gallup poll, 50% of small business owners
disapprove of a law that would raise the national minimum wage, compared to 47% who
approved. Furthermore, 60% of small business owners think raising the minimum wage
would hurt most small business owners.