Brief History of the Federal Minimum Wage
Studies of the Impact on Employment of Raising the Minimum Wage
The Minimum Wage Game
Back in April 2105, McDonald’s announced that in response to worker demands for higher wages, it would raise wages to the lowest paid employees to $1 above minimum wage. McDonald’s rationale for the pay raises was to increase the motivation of their employees to provide better customer service. As Kaja Whitehouse and Paul Davidson report in “McDonald's raises pay for 90,000 workers”:
McDonald's, which has been struggling with workers protests and sagging sales, plans to increase pay for some 90,000 workers starting in July, the company said on Wednesday.
The pay increase will lift the average hourly rate for its U.S. restaurant employees to $1 above the mandated minimum wage on July 1, the company said. McDonald's said it expects average wages to rise to more than $10 an hour by the end of 2016.
CEO Easterbrook said the pay increase is meant to motivate workers.
"We know that a motivated workforce leads to better customer service so we believe this initial step not only benefits our employees, it will improve the McDonald's restaurant experience," he said in a statement. "We'll continue to evaluate opportunities that will make a difference for our people."
Typical of those for and against higher minimum wage, the pro groups generally insisted that the dollar raise wasn’t sufficient, that the federal minimum wage should be raised to $15 per hour, while the anti groups warned that increases in wages would lead to higher prices, lower profits, and/or job losses.
Recently, McDonald’s reported that they have, indeed, been seeing greater worker productivity following the wage increases. Noah Smith, in “U.S. Companies, Try This: Raise Your Minimum Pay,” reports:
Recently, McDonald’s decided to raise wages for many of its hourly restaurant workers. The rise is modest, from about $9 to about $10, but already the company’s executives claim that they are seeing improvements in service quality:
“It has done what we expected it to --90 day turnover rates are down, our survey scores are up—we have more staff in restaurants,” McDonald’s U.S. president Mike Andres told analysts at a UBS conference... “So far we’re pleased with it."
But Why? If it helps the bottom line to raise wages, why haven’t companies done it already?
As Noah Smith asked in his article, if raising wages increases worker productivity, then why haven’t more minimum wage payers increased their wages above the minimum?
This analysis examines the dynamics between
- Employers of Unskilled Employees,
- Unskilled Employees, and
The purpose of the analysis is to better understand
- The circumstances under which employers of unskilled workers will generate net benefits by raising wages above the federally established minimum, and
- The impact that increases in the minimum wage have on players’ actions and outcomes.
A copy of the analysis can be downloaded by clicking on the link below this blog entry.