POVERTY, INCOME INEQUALITY AND THE MINIMUM WAGE By Jake Montgomery INTRODUCTION Poverty, unemployment, and income inequality are substantial issues that have grown in severity since the financial crisis of 2008 and that Congress cannot continue to neglect. The official poverty rate in the United States is approximately 16% as of November 2012 and about 43.6 million Americans currently live in poverty. The poverty threshold, determined in separate measures by both the U.S. Census Bureau and the U.S. Department of Health and Human Services (HHS), measures the number of people living below a benchmark level of income that researchers deem necessary for individuals and families to maintain a decent standard of living. People living under the poverty line do not make enough money to pay for what the federal government considers to be necessary expenditures on food, housing, healthcare, and education. With so many Americans not earning enough money to pay for basic services, which most people take for granted, Congress must attempt to reduce the level of poverty through legislation. Most economists agree that employment is crucial for individuals to bring themselves and their families out of poverty. When more people who want to work are unable to find jobs, the unemployment rate rises and the

number of people living in poverty grows. The unemployment rate has declined in recent years, from its height of 10.1% in October 2009 down to 7.6% in June 2013. The unemployment rate only measures those who are actively looking for and unable to find employment, not those who have been discouraged from seeking employment. There is therefore a debate over whether the declining unemployment rate actually signifies an economic recovery, or whether people have simply given up on looking for jobs. What’s more, today’s unemployment rate is still much higher than it was in the mid-2000s, with lows of 4.4% in both 2006 and 2007. As many Americans struggle to find jobs and live above the poverty line, the disparity in income and wealth between the poorest and richest Americans has been rapidly increasing. According to the Center on Budget and Policy Priorities, the gap between the rich and the poor began to grow in the 1970s (Stone, Tresi, Sherma). This trend continued into the 2000s, and the gap between the highest and lowest wage-earners today is at its widest since the 1920s. Wealth is also highly concentrated at the top. In light of persistently disturbing levels of poverty, some people question the fairness of a system that leads to such a profound income disparity. The issue of the minimum wage together: unemployment, and income and wealth inequality. Other policy proposals attempting to reduce poverty and 1

HARVARD MODEL CONGRESS SAN FRANCISCO 2014 strengthen the economy may be proposed, but the priority of the committee should be to determine what the best minimum wage policy is in the midst of a recovering economy with many people struggling. The federal minimum wage was devised as a baseline, and employers must pay their employees a wage equal to or exceeding this hourly wage. Congress has the power to pass such a provision as the result of its Constitutional powers to regulate interstate commerce. The federal minimum wage, last revised in 2009, is currently $7.25 per hour. This hourly wage results in a yearly income of about $14,500, well below the HHS poverty threshold for a family of even two ($15,130 per year). Therefore a single parent earning the minimum wage will, along with her children, automatically be living below the poverty line according to HHS figures. States are allowed to have their own minimum wage laws (permitting it exceeds the national baseline), and nineteen states have minimum wages above the Federal standard. This leaves 28 states that use the Federal minimum wage mandated through the Fair Labor and Standards Act. The question of what to do regarding the minimum wage is a complicated economic, moral, and political question. Economists disagree on whether or raising the minimum wage helps or hurts the poor and whether it strengthens or weakens the economy as a whole. Some people believe that markets should determine all wages while others believe that all people should earn at or above some kind of living wage—the wage needed for basic necessities. On top of these considerations, Congress must consider the opinions of their constituents, their party’s historical and current platforms, and the viability and implementation procedures of their policies. While all members of Congress might share the goal of reaching an economy in which more Americans are working and enjoying higher standards of living, they

disagree on how to achieve it. It is up to you as delegates to this committee to pass legislation that will help the American people.

EXPLANATION OF THE PROBLEM Historical Background Following the Great Depression, President Franklin Delano Roosevelt and the United States Congress wanted to address the unprecedented level of financial distress by expanding federal regulatory organizations and creating a financial security net in the form of the Social Security Administration. In 1938 Congress passed the Fair Labor Standards Act (FLSA), which set a federal minimum wage of 25 cents per hour, established a 40-hour workweek, and set rules against child labor. The creation of a federal minimum wage was an example both of regulation of the economy by the federal government and the novel notion of fiscal protection for America’s lowest-paid workers. The idea behind the minimum wage was to reduce the poor’s reliance on welfare and give them the power to lift themselves out of poverty through working and receiving a decent wage. Since its establishment, the federal minimum wage has been raised twenty-two times, expanding to cover more types of jobs and protect more workers. In 1961 the FLSA was amended to include workers in the retail sector, and in 1978 it was expanded to include all workers (with some exceptions, such as workers who earn tips). In the 1980s the minimum wage fell, and poverty and income inequality rose, but recessions in 1979 and the early 80s make it difficult to prove a causal link between the two. In 2005, the Federal minimum wage was increased to $5.85 per hour and in 2007 it was raised again to $7.25, the level at which it remains today. The level of income and wealth inequality that persists today has caused some economists and policymakers to propose raising the

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HARVARD MODEL CONGRESS SAN FRANCISCO 2014 minimum wage once again. According to Congressional Research Services (CRS), in 1989, the top one percent possessed 30% while the bottom fifty percent possessed 3% of the wealth. By contrast, today, the top one percent of Americans possesses 34.5% of all wealth in the country, while the bottom 50% possesses just 1.1% of the wealth. Thus, the poorest Americans today possess a substantially smaller portion of the nation’s wealth than they did in the past. In addition to wealth inequality, Americans have also recently experienced a widening gap in income inequality. According the Stanford Center on Poverty and Inequality, the top one percent of wage earners control about 25% of all the country’s income, the highest share controlled by this group since 1928. These figures have resulted in about 16% of Americans living in poverty today, the highest poverty rate since 1993. 22% of all American children, and in particular 38% of black children live in poverty. While traditional poverty rate statistics measured by the Census Bureau may be flawed due to the exclusion of social service programs such as food stamps and housing subsidies, it is nonetheless evident that the number of Americans, and especially Americans in the racial minority living in poverty has increased in recent years. Positive and Normative Arguments Against Raising the Minimum Wage The main arguments against raising the minimum wage stem from neoclassical economic theory, which is based on the idea that a free market is more efficient than a regulated market. In free markets, consumers buy goods from producers and the market price is set based on the willingness of consumers to buy and producers to sell. If there is a high demand for a certain good, its price will go up, because it is desirable and producers only produce a limited quantity of it. If there is a high supply of a good, the price

will fall, because consumers have many different options when buying the good. This describes the process by which supply and demand are used in markets to determine a market price. In the labor market, workers make up the supply side of the market and employers make up the demand side. Employers demand labor, and the workers supply the labor. Based on the willingness of workers to supply their labor and the willingness of employers to “consume” or hire labor, a market price is set, and this price is the wage of labor, the salary that the employers pay to their employees. Companies in similar industries will have similar wages for their employees. When the government introduces a minimum wage, suddenly the price in the labor market, the wage for workers, is no longer set by market factors but rather artificially determined. This artificial wage only affects employers who had been paying a wage below the minimum wage, mainly low-skill jobs such as fast-food restaurants. Thus, some employers have more expenses to pay in the form of higher wages when the minimum wage rises. Neo-classical economic theory holds that because employers have to pay a higher wage, they elect to simply hire fewer workers to limit costs. This means that increasing the minimum wage actually hurts the poor workers that the policy is trying to help, because there are then fewer jobs available. Rationally, with forced higher wages, more people will want to work—possibly high school dropouts or people who are enticed by a higher wage—but less people will be able to work as employers hire less workers. Thus, the supply of labor—the workers—rises while the demand for labor—the employers—falls, and we have what is called a surplus of labor. This means that there are more people who want to work than are able to, because employers are not hiring. A surplus of labor increases the unemployment rate, which measures the number of people who want to work but

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HARVARD MODEL CONGRESS SAN FRANCISCO 2014 cannot find a job. Thus, neo-classical economic theory, holds that increasing the minimum wage hurts low-wage workers, leads to fewer jobs, and increases the unemployment rate. According to Harvard economist N. Gregory Mankiw, an increase in the minimum wage particularly hurts teenagers, who often seek low-skill minimum wage jobs. Many other economists who oppose the minimum wage echo this argument. They say that a higher minimum wage can be especially harmful when young people cannot obtain low-skill jobs and begin on the track to holding a steady full-time job that pays decently. Economist David Neumark writes that raising the minimum wage does in fact increase poverty and that low wages do not actually contribute to the poverty rate. He argues that raising the minimum wage distorts the incentives of low-wage earners and pushes them away from the things that will allow them to earn higher wages—more education and job training—while also increasing the level of unemployment. Richard Vedder and Lowell Galloway, Senior Fellows at the National Center for Policy Analysis (NCPA) agree with Mankiw and point out that only 6.5% of minimum wage earners are single parents. They argue that unless labor policies increase the number of jobs available to the poor, they will do nothing to decrease poverty and may even increase poverty by reducing employers’ ability to hire more workers. In addition to teenagers, Vedder and Galloway note that blacks are strongly and negatively affected by such an increase. In the early 1990s an increase in the minimum wage coincided with an increase in nonwhite unemployment. According to the Cato institute, the current unemployment rate for teenagers is about 25% and the unemployment rate for minority teenagers is about 28%. With such a high unemployment rate for teenagers and minority teenagers in particular, it may not be an ideal

time to raise the minimum wage. It is clear from the neo-classical standpoint that entrylevel workers would be hurt by an increase in the minimum wage and, therefore, those who advocate for an increase in the wage are supporting a policy that will actually hurt the people they are trying to help. It is also important to think of the minimum wage in terms of the larger economy, which is still recovering from the financial crisis and housing bubble of 2008. The unemployment rate could increase to recession-levels, growth could slow, and the economy could sink into another recession with bad policies. Raising the minimum wage could also hurt small business and the most vulnerable Americans, so it carries some risk and may be a misguided policy. The NCPA argues that the current minimum wage may actually be too high and that Congress should consider reducing the wage in order to spur job growth. Positive and Normative Arguments in Favor Raising the Minimum Wage Some contemporary economists have rejected the basic principles of neo-classical economics regarding the minimum wage. They say that an increase in the minimum wage does not in fact cause a labor surplus and an increase in unemployment. In 1992, economists David Card and Alan B. Krueger conducted a case study analyzing the effects of an increase in the minimum wage on fast-food restaurants in New Jersey. Fast food restaurants are typically affected by a change in the minimum wage, because they generally hire minimum-wage employees. Card and Kreuger attempted to specifically test the standard neo-classical economic principle that an increase in the minimum wage causes an increase in unemployment. However, their experiment found the opposite; an increase in New Jersey’s minimum wage from $4.25 to $5.05 did not result in a

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HARVARD MODEL CONGRESS SAN FRANCISCO 2014 decrease in employment, and in fact, employment actually increased for lowincome jobs in fast-food restaurants. Prices rose, indicating that the cost of the increase wages was passed on to consumers. Many economists argue that rather than firing workers when the minimum wage rises, employers actually just raise prices or accept decreased profits. An increase in the minimum wage also helps businesses as a result of consumers’ increased purchasing power. With more people earning more money, consumption will rise as the standard of living for the lowest-wage workers rises. Once the dogma of the neo-classical model is put aside, these economists turn to the reasons why increasing the minimum wage for poor, low-skill workers is important. Economist David S. Lee analyzes the increase in wage inequality in the 1980s and ties this trend to a declining minimum wage. His research proves the common sense notion that as the minimum wage falls, the disparity between the highest and lowest earners rises. Therefore, an increase in the minimum wage may lessen both the level of poverty and that of income inequality. Lee’s findings were especially true for poor women, the group who generally benefit the most from an increase in the minimum wage. According to the Census Bureau, approximately 60% of workers who benefit from a higher minimum wage are women. Approximately 20% are teenagers earning 46% of their families’ total wages in 2011, suggesting that raising the minimum could directly benefit families and children who may be currently struggling, lacking basic necessities such as food, clothing, and healthcare. Those who support an increase in the minimum wage often point to the fact that the wage has not kept up with inflation—the yearto-year rise in economy-wide prices. When all prices increase (rather than just the price of one good) inflation increases, and dollar buys less than it used to. Economists describe this

change in spending power of a dollar as the real value of a dollar, which declines as inflation increases. At one time, it was possible to buy a meal for 50 cents. Today, that would be unheard of—50 cents buys a lot less than it did in the past. Using similar logic, if the minimum wage was $7.25 per hour in 2007 and it has remained at this mark through 2013, but prices have risen between 2% and 3% per year during this period, the real value of the money earned by minimum wage earners has declined. A full-time worker earning the minimum wage earns $14,500 per year, but $14,500 could buy more in 2007 than it does now, because prices across the entire economy were lower in 2007 than they are now. This means that every single year the minimum wage stays the same, its real value declines or erodes. Thus, people earning the same minimum wage from year to year are growing poorer and poorer. The Economic Policy Institute argues that as the real value of their wages has eroded, minimum wage earners’ productivity has increased. This means that these people are better workers but are essentially getting paid less than minimum wage workers of ten or forty years ago. Average hourly productivity has increased by 112% since 1968, the year of the highest minimum wage (in real terms). However, the real value of the minimum wage declined steadily in the early 1980s. During this same period, income inequality increased; the 90/10 ratio, which compares the income of the 90th percentile of wage earners to the 10th percentile rose from about 3.5 to 4.5. This ratio is currently 4.7, and the real value of the minimum wage has fallen by about two dollars from the early 1980s to today. Indeed, not only has the minimum wage not kept up with inflation (rising prices), but it also has not stayed on track with the average wage of all workers in the economy. The EPI has developed a “basic family budget” which takes into account the expenses of all of a family of one parent and two

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HARVARD MODEL CONGRESS SAN FRANCISCO 2014 children. Such a family needs about $40, 273 per year, a figure about three times the earnings of a full-time worker earning the minimum wage. Thus, some argue that the minimum wage is currently unable to reduce poverty in the way that it may have been meant to.

Recent Developments The last time the minimum wage was increased was in 2007 through a bill proposed by George Miller (D-CA) in the House. The bill was supported by 82 Republican representatives and signed into law by Republican president George W. Bush. It passed the Senate only after tax cuts for small businesses were included to curb any negative affects a higher wage might have on employers. The bill raised the minimum to $7.25 per hour. Increasing the minimum wage has also been found to be popular among the American populace. According to a 2013 Gallup Poll, 71% of Americans support raising the Federal minimum wage to $9 per hour. The poll found that 91% of Democrats and 94% of liberals supported raising the minimum while 50% of Republicans and 54% of Conservatives supported the measure.

Congressional Action On issues of poverty, Congress has been unable to take substantial action in the past few years, which is why the current moment demands some kind of compromise in which Congress passes a bill that attempts to attack this growing problem. In 2013, Democrats in the House attempted to pass the Fair Minimum Wage Act of 2013, which would have raised the minimum wage to $10.10 and tied future changes in the minimum wage to inflation. However, the bill lacked Republican support in the House, and did not pass in that chamber.

FOCUS OF THE DEBATE Conservative View For the most part, Conservatives oppose the minimum wage on the grounds that it represents unnecessary government intervention into the economy and that it can have negative consequences for the people it is seeks to help. Increasing the price of employment makes hiring workers less attractive for employers, and therefore, unemployment rises with the minimum wage. Speaker of the House of Representatives John Boehner says that an increase in the minimum wage would make hiring more workers especially difficult for small businesses. Small businesses are important in the American economy as job creators, and making it difficult for them to create more jobs will severely hurt the economy. The biggest problem with some minimum wage proposals for conservatives is the costof-living adjustment stipulations, which removes control of the minimum wage from the hands of lawmakers, tying changes in the minimum wage to changes in inflation. Some conservatives may be willing to compromise on a one-time increase in the minimum wage, but most are opposed to any type of cost-ofliving adjustment program. Philosophically, conservatives promote a policy of less government regulation of the economy, and the minimum wage is a regulation of wages. Conservatives generally believe in neo-classical economic principles that advise a hands-off approach and a free market that sets its own prices based on supply and demand. Therefore, many Conservatives may be opposed to increasing the minimum wage on both economic and philosophical grounds.

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HARVARD MODEL CONGRESS SAN FRANCISCO 2014 Liberal View

Interest Group Perspectives

Liberals believe that the minimum wage should be raised and possibly indexed to inflation. Many have suggested increasing it to $9, with some advocating for an even higher $10.10. Despite the failure of the Fair Minimum Wage Act of 2013 in the House, Democrats plan to keep the increasing of the minimum wage a key piece of the party platform. According to House Minority Leader Nancy Pelosi, increasing the minimum wage and tying it to inflation will be a key part of the Democratic Party platform in the upcoming midterm elections of 2014. Liberals believe that income disparity is so detrimental to the welfare of the American people and the health of the economy that its benefits outweigh any adverse consequences. Moreover, they believe that opponents of the minimum wage fail to recognize both the workers’ cost of living and their higher productivity over time. They argue that the Federal government has the responsibility of ensuring that the poorest, lowest-skilled workers receive a fair wage. Liberals see increasing the minimum wage both as a moral and fiscal imperative, with the added bonus of being one that is politically popular.

Presidential View President Barack Obama has often voiced his strong support for raising the minimum wage to $9, including this proposal in his 2013 State of the Union Address to Congress. He has advocated raising the minimum wage to $9 by 2015 and afterwards indexing the minimum wage to inflation. The president hopes this plan will reduce both poverty and income inequality and strengthen the weakened American middle class. According to the president, this plan will help poor families and ensure that fewer children are forced to grow up in poverty.

The Center for American Progress The Center for American Progress (CAP), a progressive think tank, supports raising the minimum wage to $9 per hour. The minimum wage mainly affects poor, single mothers and people of color, who are among the most vulnerable groups in America. In addition, CAP argues that raising the minimum wage will not stunt job growth, because businesses can slightly reduce their profits or raise prices in order to absorb the costs of having to pay a higher wage. Raising the minimum wage will increase the salaries of 21 million people. These workers’ current incomes made up about only 1.6% of the economy’s total income in 2011. Therefore, raising the minimum wage changes peoples’ lives for the better without having large ramifications for the rest of the economy. In addition, CAP believes that businesses would enjoy gains from a higher minimum wage in the form of higher worker productivity, less labor turnover, and higher consumer purchasing power. The Cato Institute The Cato Institute, a libertarian think tank, believes that a high minimum wage distorts the labor market in a way that hurts the same unskilled laborers it is trying to help. It argues that the minimum wage prevents employers from paying workers the market value of their labor. In the face of additional market distortion, they argue that businesses will choose to hire fewer workers and to reduce labor hours. Cato believes that the groups most adversely affected by an increase in the minimum wage are low-skilled workers, minorities, and young people. These groups also happen to be the groups with relatively higher levels of poverty, so Cato holds that

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HARVARD MODEL CONGRESS SAN FRANCISCO 2014 raising the minimum wage does nothing to reduce and may actually increase rates of poverty. Instead, Cato supports policies that create rather than reduce jobs for low-skilled workers. Policies that aid employers in hiring more workers, such as tax cuts for businesses, would allow companies and small business in particular to hire more workers and pay more people a wage that will allow them to pull themselves out of poverty. According to Cato, entry-level workers usually earn higher wages after a short period of time, so people are rarely stuck at the minimum wage for a long period of time. With a lower minimum wage and more jobs, it believes that people could start with a low wage but work up to a higher wage and better standard of living, rather than having difficulty finding a job to begin with. Economic Policy Institute The Economic Policy Institute (EPI) advocates indexing the minimum wage to the average wage. While the average wage is different from inflation, it tends to rise as inflation rises. EPI points out that as inflation brings the average wage up with it, the minimum wage falls behind. Therefore, the real value of the minimum wage is eroded, and more people earning the minimum wage fall into poverty each year. EPI’s plan would reverse this phenomenon. The Institute supports keeping the minimum wage pegged at 50% of the average wage, a standard that has not been met since the 1960s. During the 1960s, the economy experienced robust growth, and wealth was spread more evenly across income groups than it is today. In the 2000s, the minimum wage averaged about 34% of average wages, and the economy has been weak as in income and wealth disparity have grown to new heights. EPI believes these trends are not coincidental and that the only way to help the economy recover while reducing poverty and protecting

American workers is to index the minimum wage to average wage.

POSSIBLE SOLUTIONS With many economic, political, and moral arguments surrounding the issues of the minimum wage, poverty, unemployment, and income inequality, lawmakers should look for solutions that balance various priorities and promote the best policy possible. Three potential options are presented here, but lawmakers are encouraged to come up with their own solutions as well for discussion and debate.

Raise the Minimum Wage Congress can pass legislation that raises the minimum wage one time and does nothing more. In the past, some proposals have included a minimum wage of $9 or $10.10 per hour. However, these measures have not been popular among conservatives, which is largely why such a measure has not been successful in Congress recently. Politicians should seek a compromise, such as the signed into law by Republican President George W. Bush in 2007. In exchange for increasing the minimum wage, President Bush and Republicans in the Senate demanded that the bill include a tax break for small businesses to help them withstand the higher wages they would have to pay their employees. When Democrats agreed, the bill was signed into the law and the minimum wage was raised from $5.85 to $7.25 per hour. If any sort of minimum wage increase is to pass in Congress today, it will most likely have to be accompanied by some kind of concession to conservative lawmakers. In addition, it may be wise to keep economists’ worries about a higher minimum wage close to heart, especially in light of the shaky recovery from the 2008 financial crisis. It is important that recent positive tends in the labor, housing, and stock markets are not

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HARVARD MODEL CONGRESS SAN FRANCISCO 2014 reversed by poor economic policymaking in Congress. Potential negative consequences of any change in economic policy should be properly considered before a minimum wage is enacted.

Raise the Minimum Wage and Tie it to an Economic Indicator Policymakers, primarily liberals, have proposed raising the minimum wage and indexing future changes in the wage to either changes in inflation or changes in the average wage, which changes with inflation. This policy would remove the politics from minimum wage policy so that politicians wouldn’t be able to prevent increases in the minimum wage when inflation increases. It would also be a much more efficient means of continually increasing the minimum wage in keeping with its real value. Proponents of such a plan argue that as prices rise and the minimum wage stays constant, its real value declines. This causes minimum wage workers to become poorer every year that prices rise. Indexing the minimum wage to inflation or the average wage would allow these people to keep earning the same amount of money in real terms regardless of whether politicians could reach political compromises year after year. However, many lawmakers are wary of this idea, as they are concerned that the minimum wage would become too high and hurt the people it is trying to help. If the minimum wage becomes too high, employers could, as conservatives fear, start hiring fewer workers and cutting workers’ hours. It could even potentially force some companies who cannot keep up with the ever-increasing wages out of business and eliminate jobs in the process. Many opponents of this plan would like to retain firmer control over changes in the minimum wage than this policy would allow.

Do Not Raise the Minimum Wage (Or Lower It) Many economists and lawmakers oppose the idea of increasing the minimum wage on the grounds that it is not sound economic policy. These people may even advocate for lowering the minimum wage to encourage employers to hire more workers, reducing unemployment. If the surplus of labor is decreased, more people should be employed and fewer people who want to work will be unable to find it. However, if neo-classical theory does not hold, the consequences could be adverse, as minimum wage earners could potentially earn even less than they currently do, pushing more people into poverty. There are, however, many other economic policies that lawmakers who do not favor an increase in the minimum wage can choose to pursue. Tax breaks to job creators (such as small businesses) is one potential option. Adjustments to unemployment benefits are another option, as some economists believe that decreasing unemployment benefits would incentivize those without jobs to find work. Delegates who are firmly opposed to changes in the minimum wage should be creative in designing other policy proposals to decrease poverty, income inequality, and unemployment.

QUESTIONS FOR POLICYMAKERS Policymakers face a myriad of economic, political, and moral questions as they consider the issues of poverty, unemployment, income inequality, and the minimum wage. Should we retain the status quo? If not, then there are a variety of positive and normative questions that should be considered. Positive questions include: do we believe that raising the minimum wage reduces poverty? Or does it actually increase unemployment and poverty through a labor surplus? Do businesses reduce profits and

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HARVARD MODEL CONGRESS SAN FRANCISCO 2014 increase prices when they have to pay a higher wage or do they reduce the number of employees? Are the lowest-skilled, lowestpaid workers hurt the most when the minimum wage increases or do they benefit from a higher salary? Does a free market allocate resources and wages efficiently or are there inefficiencies in the labor market? Does increasing the minimum wage reduce income inequality? Different economists have different answers to each of these positive questions, making the task of finding concrete answers seemingly impossible for lawmakers. Contemporary studies by respected economists show conflicting results, and delegates must sort through these studies to find the evidence and the argument they find most convincing. Lawmakers should also consider significant normative questions such as: should the federal government intervene in the labor market? Should markets be left to sort themselves out and set their own prices, or does the government sometimes have to intervene to protect people? Should the lowestskilled, lowest-paid workers receive government protection in the form of a livable minimum wage? Should the minimum wage be higher than a livable wage and should it be used to lift people out of poverty? Delegates must analyze these questions carefully when preparing for the conference.

CONCLUSION Congress has a very important task before it today: finding a way to help the 16% of Americans, the 43.6 million people, more than 16 million of them children, out of poverty, into employment, and on the path toward a better life. One policy option that Congress must consider is increasing the minimum wage, the lowest wage that employers are allowed to pay their employees. A higher minimum wage will most likely decrease the growing gap between the wealthiest and

poorest Americans. Currently the wages of the wealthy are growing while the wages of the poor remain stagnant and lose real value every single year because of inflation. Lawmakers are allowing the wages earned by America’s poorest workers to erode every single year, and they must carefully consider whether this is a path down which they wish to continue. If they want the minimum wage to retain its real value from year to year then they should peg the minimum wage to inflation. Yet our members of Congress must also be aware of the dangers of a continually increasing minimum wage, especially in light of the delicate economic recovery that is still in progress. There are a multitude of positive and normative questions that delegates must ask themselves during their research leading up to the conference, and the must consider the various political, economic, and moral questions that all politicians must ask themselves once they are in office. We all want to reduce poverty and provide a great standard of living for all Americans, but how do we do it?

GUIDE TO FURTHER RESEARCH Delegates should come prepared to discuss minimum wage policy and therefore must have a basic understanding of the different theories of the affects of an increase in the minimum wage. Delegates should research basic microeconomic theories about the minimum wage and email any questions on the subject to the committee chairs before the conference. Some of the economic concepts involved in minimum wage policy are difficult to understand, so questions are encouraged. We will also take time to go over the economic theory behind these issues if need be during the committee. Delegates should also familiarize themselves with information about current levels of poverty, income inequality, and unemployment and observe how these

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HARVARD MODEL CONGRESS SAN FRANCISCO 2014 measures change between the time that this briefing was written and the conference. Delegates are encouraged to pay attention to any news on minimum wage policy, the poverty rate, and the unemployment rate. Information about the poverty rate can be found on the U.S Census Bureau’s website, and monthly updates on the unemployment rate can be found on the U.S. Bureau of Labor Statistics website. Delegates should also examine at least two different economic policy research papers about the minimum wage. It is likely that delegates will find conflicting information for and against raising the minimum wage. Thus, delegates should prepare to both argue for their side of the issue and respond to the arguments of the other side. Delegates have some freedom to make creative arguments and think of their own ideas as long as they are grounded in current economic research. Again, delegates are always encouraged to email the committee chairs with questions about the topic, or the conference in general.

Real Value – Prices are kept constant so inflation does not factor into a good’s value. Therefore, the value of a good can be measured, accounting for price fluctuations Labor Turnover- The rate at which workers change jobs

BIBLIOGRAPHY Lowrie, Anne, “Raising Minimum Wage Would Ease Income Gap but Carries Political Risks”, The New York Times, http://www.nytimes.com/2013/02/13/us/politic s/obama-pushes-for-increase-in-federalminimum-wage.html?pagewanted=all. Febraury 13, 2013. de Rugy Veronique, “Raising the Minimum Wage: A Tired, Bad Proposal”, National Review Online. http://www.nationalreview.com/corner/340644 /raising-minimum-wage-tired-bad-proposalveronique-de-rugy, February 13, 2013.

GLOSSARY Positive Statement– A positive statement is a statement of what is rather than what should be, of fact rather than opinion. Normative Statement – A normative statement is a statement of what should be rather than what is, of opinion rather than fact. Indexation – Tying one value to another. Thus when inflation rises, so too does the minimum wage by some percentage determined by economists. Inflation – An increase in the price level; rather than just the price of one good rising, the prices of all goods in the economy rise (or fall) from year to year

Saad, Lydia, “In U.S., 71% Back Raising Minimum Wage”, Gallup, http://www.gallup.com/poll/160913/backraising-minimum-wage.aspx, March 6, 2013. Fact Sheet: The President’s Plan to Reward Work by Raising the Minimum Wage, http://www.whitehouse.gov/the-pressoffice/2013/02/13/fact-sheet-president-s-planreward-work-raising-minimum-wage, February 13, 2013. Mcmahon, Tim, “Average Annual Inflation Rates by Decade”, http://inflationdata.com/Inflation/Inflation/Dec adeInflation.asp, November 5, 2012.

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HARVARD MODEL CONGRESS SAN FRANCISCO 2014 Stone, Chad; Trisi, Danilo; Sherman, Arloc, “A Guide to Statistics on Historical Trends in Income Inequality” http://www.cbpp.org/cms/?fa=view&id=3629, October 23, 2012. Deere, Donald R., Don’t Raise the Minimum Wage—the Bar is Already Too High, National Center for Policy Analysis, http://www.ncpa.org/pub/ba270, June 9, 1998. Levine, Linda, “An Analysis of the Distribution of Wealth Across Households, 1989-2010”, Congressional Research Service, http://www.fas.org/sgp/crs/misc/RL33433.pdf, July 17, 2012. Lee, David S., “Wage Inequality in the United States in the 1980s: Rising Dispersion or Falling Minimum Wage?” http://piketty.pse.ens.fr/fichiers/enseig/ecoineg /articl/Lee1999.pdf Card, David; Krueger, Alan B., “Minimum Wages and Employment: A Case Study of the Fast-food Industry in New Jersey and Pennsylvania,” The American Review, Volume 84, Issue 4 (Sep., 1994), 772-793 http://web.uvic.ca/~hschuetz/econ370/CardKr uMW.pdf Shierholz, Heidi, Fix It and Forget It, Index the Minimum Wage to Growth in Average Wages, EPI Briefing Paper, Briefing Paper # 251, http://www.epi.org/page/-/pdf/bp251.pdf, December 17, 2009.

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