Raquel

Raquel

As the legislative session marches on, Maryland lawmakers and supporters are proposing to raise the minimum wage.  A number of bills have been introduced that increase the minimum wage to as high as $12.50 per hour.  At the current minimum wage rate of $7.25 per hour, a full-time worker would bring home approximately $15,000 a year—well below the poverty line of $23,050 for a family of four that is currently set by the federal government.

 

The minimum wage is one of the topics that economists most like to debate and theorize about. For instance, the traditional model of economics explains that, in a market where supply and demand maximize employment, an artificial increase in the wage rate (such as an increase of minimum wage) will reduce employment. Alternatively, other theories posit that increased wages translate to more spending and therefore more demand for goods services—driving the demand for employment upward. Other theories look at it from the supply side of the equation. The belief is that, when workers are earning better wages, they will be encouraged to work harder and be more productive. The extra cost incurred by businesses for higher rates will be offset by increased productivity and output. The ultimate impact will vary since labor markets each have their unique characteristics. The true impact of wage increases will vary by geographic location, type of industry, and labor market composition.

minimum wage

Image credit: Marguiles (Click for full size image)

 

The majority of the opposition comes from retail or food-related business owners who say that increased labor costs will severely impact their bottom line and increased costs would drive them to have to decrease their staff. However, other business owners do not share in that sentiment. Some argue that better pay equals lower staff turnover (which can be extremely costly) and can impact the success of a business venture.

 

Clearly, the economics of the minimum wage debate are highly nuanced. The ultimate impact on Maryland is difficult to determine without thorough analysis and projections. What we do know is that Governor Martin O’Malley is fully in support of raising the minimum wage during his last term in office.


About Raquel Frye

Raquel Frye is the Associate Director of the Regional Economics Studies Institute (RESI). RESI is considered a leading expert on Maryland’s economy and is responsible for providing economic consulting services for public and private clients across the State. An enthusiast of economics and economic education, Raquel’s posts tend to focus on analyzing the economics of policies and current news stories (with a little econ humor thrown in for good measure).

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