On USATODAY’s website, Paul Davidson wrote an article last week, entitled, More states, cities raising minimum wage.  Recently more and more fast-food workers paid hourly wages have rallied for a raise in minimum wage across the United States.  With the gap between the upper and lower classes only rising throughout the world, a change like increasing the minimum wage would reduce such a wide gap.  President Obama seems to be in favor of this change and supports a bill that plans to raise the federal minimum hourly wage from the current $7.25 to $10.10 in the next two years.  Federal wage aside, ten states have already passed similar increases with more talks of increasing rates in more than thirty other states.  Even cities have put this idea into motion; urban centers such as San Francisco, Santa Fe, San Jose, Washington D.C. have already increased their minimum wage to $10.10.

People in favor of this increase argue that it will help low-wage industries like restaurants and retail stores which accounted for 22% of jobs lost and 44% of the jobs added since the recession.  This seemingly large raise to the minimum wage will increase the pay for 28 million workers as well as add a $22 billion into the economy (because, Cooper argues, low-wage workers spend much more of their paycheck than high wage workers).

Michael Saltsman, research director for the Employment Policies Institute, argues that if minimum wage increases by almost three dollars, then businesses would have to lay off workers or hire less people.  This likely means that fast-food franchises could replace their workers with devices, like touch-screen ordering systems, reducing the need for workers.  Because fast-food franchises would rather charge less for their products, by “boosting the federal minimum wage to $10.10 per hour would lift 900,000 Americans out of poverty, but [also] reduce employment by about 500,000 workers.”

As Davidson’s article shows, labor wages has been a particularly heated discussion in the United States since the recession.  With the increase in minimum wage, the indifference curve for labor wages would shift upward with the equilibrium point increasing from $7.25 to $10.10 on the y-axis (wages per hour).  Unlike many other goods, the substitution and income effects, which usually work together, would contradict one another in this instance.  In the lower half below the equilibrium point, the substitution effect dominates which states that the worker should work more hours because now leisure time has become more expensive.  In the higher half above the equilibrium point, the income effect dominates which states that the worker should work less because they are better off than before and are able to buy more things, like leisure.  By increasing the minimum wage, there will be less of a need to have more workers.  It is uncertain until it happens, but this increase could cause the workers to work less because they can afford it, which may actually prevent them from earning much more money than they already do without the minimum wage increase.  Because the low-wage workers’ earnings are less, the $22 billion dollars economists hope will be fed into the economy will be lower than expected.  So, is an increase in minimum wage really worth it for the economy?  I don’t really have an answer just yet…  But, come 2016, I am very curious to see how the raise in minimum wage will actually affect the American economy and where the country will go from there.