Do you work at a minimum wage job in Ohio, California, or Colorado? How about in Michigan? If so, you might soon be seeing a little extra in your paycheck. Why? Because these states along with 15 others have all raised their minimum wage rate. They join a number of other states that had previously raised their minimum wage, most well beyond the federally set $7.25 per hour. The rise in minimum wage corresponds with growing concern over affordability, and while 9 in 10 Democrats support minimum wage increases along with almost half of Republicans, critics continue to raise concerns that higher wage rates could put upward pressure on prices, lower profits, and reduce employment. Indeed, higher labor costs are especially problematic for businesses that have little room to raise prices, leaving them with few options other than to reduce the number of workers they employ.

 

Given that the federal minimum wage hasn’t risen since 2009, the increase is likely to be especially welcome at a time when many families are having to cut back on even basic expenditures. It’s estimated that some 8.3 million workers are expected to benefit from the newly higher wage rates, which are expected to generate an additional $5 billion in earnings. Yet, despite earning more, sharply higher prices on food, housing, and healthcare mean that for many Americans, affordability will continue to be an issue.  

Discussion Questions:

1. What is the relationship between income and consumption, and income and saving? How will these relationships change for workers living in states with newly higher minimum wage rates?   

2. Consider the tools available to better understand the economy. How can economists use savings schedules and consumption schedules? What insight do they provide?