Question

While the U.S. Federal minimum wage remains at $7.50 per hour, many states and municipalities have instituted their own higher minimum wages in reaction to rising costs of living. Based on discussion in class, why have most of these state and municipal minimum wage initiatives not truly addressed the challenges facing American workers?

Answer 1

One reason why the increase in minimum qages at the state level may not address the challenges faced by the American workers is that higher minimum wage laws in the state does not encourage investment within the state, as the investors find it more profitable to start business outside the state where minimum wages are lower. This leads to decrease in employment opportunities within the state and increasing unemployment among local workers, who are then forced to migrate and work at much lower wages. The state level stipulation of minimum wages may at best increase the welfare of unionised workers in the formal sector and it may increase entry barriers to new workers within the state.