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created minimum wages of 25 cents an hour (Anderson, 1988) in 1938, was to inhibit the flight of workers from low wages in the South to higher paying states in New England. The flight of workers from the South to New England was causing a drain in manufacturing capabilities in the South, and an exploitation of the workers in the North through the lowering of wages. The resulting competitive spiral would have set off another Great Depression just as devastating as the one experienced in 1929. The resulting minimum wage passed by Congress, was also tied to the Fair Labor Standards, which stated that real economic growth could not proceed unless workers had adequate purchasing power to consume the goods they produced, and that a minimum wage was needed to assure minimally adequate purchasing power for economic prosperity. Such observations made in 1938, which was applied to interstate markets and workers in the U.S. are still valid, but the validation for increasing the minimum wage now applies to the global economy, as borders and frontiers have been breeched and opened to world markets.

In a short-sighted economic philosophy of American manufacturers flight to Mexico to create `macheadoras using cheap labor, the American manufacturer is then setting up a situation where more American workers will become unemployed, and less able to buy American products, which is the end destination of the `macheadoras products.

With less Americans employed, less products will be bought, more Americans will have to go on either welfare of some type of assistance program, which means that other manufacturers will have to pay higher taxes, and possibly higher import duties on foreign products, causing further lowering of wages. Therefore, not increasing the minimum wage over time, will have disastrous effects in the U.S. and world-wide. Although it appears that many people, especially in fast food and service jobs receive minimum wage, a Washington-based study group, the Economic Policy Institute, noted that only 2.4% of the workforce in Indiana earns minimum wage. Only another 7.9% is paid $4.25 to $4.99 an hour. The ususal entry level in Indiana is $6 an hour. The reason for such so-called high wages, is that the job market is tight, and if employees don t pay higher wages in starting salaries, the workers will go elsewhere to work (Shankle, 1995). Therefore, the reverse effect appears to be that if employers continue to pay low wages, then skilled workers or entry-level workers with the ability to move will

go to other areas where higher wages are paid. Higher minimum wages appear to guarantee a stable labor pool for the employer.

Although some textbooks often teach that increasing the minimum wage leads to greater unemployment among workers with low skills, recent studies and interviews have not born this out to be as once factual as first thought (Zycher, 1995).

Both sides of the data bases for and against raising minimal wages appears to be flawed, in that in the study of labor it is the number of work hours, and the expected productivity of the given workers, that makes a difference if wages rise by decree. Such productivity, at face value, appears to be detrimental to the worker. However, such expectations create a more highly skilled worker that can then seek employment with both higher wages, based on practiced skill. For example, a person that starts at a higher minimum wage, will stay in a job longer, increase his or her skill on the job, and instead of moving from job to job at the same pay level, will be able to rise to more supervisory positions, that pay more and that provide more compensatory benefits such as health care. Skipping from job to job, in the view of a prospective employer, does not engender confidence in paying a worker higher starting wages, as training for new employees if often costly. Low

entry-level employees hired at subsistence minimum wage, also do not have the opportunity, due to lack of funds to increase his or her education, nor are they provided with fringe benefits and compensation packages.

Compensation packages have slowly creeped upward from 1929, when mandated benefits were first enacted. In 1929, only 0.6% employees had mandated benefits, and by 1989, mandated benefits still only covered about 8.7% of the working population employed by private employers (Gruber and Kruger, 1990).

In studies of the reasons for such a slow rise in mandated benefits, especially for entry-level workers, it appears employers cannot simultaneously accommodate entry-level workers in the way that serve the workers long-term interests. The reason being that mandated benefits, accompanying mandated rises in minimum wage, will crowd the job market out for entry level workers that desperately need on-the-job-training, in favor of older, more skilled workers. Therefore, although an increase in minimum wage should be enacted, it should not be followed with or tied to mandated benefits, as such a marriage would defeat the whole purpose of raising the minimum wage.

Reference List

Anderson, L. (1988). The minimum wage. NY: Grolier s Multimedia Encyclopedia, Inc.

Gruber, J, & Krueger, A.B. (1990-December). The incidence of mandated employer-provided insurance: Lessons from Worker s Compensation Insurance. National Bureau of Economic Research Working Paper No. 3557, Cambridge: NBER.

Meroney, J. (1995-February). Dems push hike in minimum wage (51) Human Events, pp. 4

Rothstein, R.(1993-September) Without higher wages, free trade doesn t pay. New Perspectives Quarterly, (10), pp. 42.

Shankle, G. (1995-February). Minimum-wage raise might nudge other wages higher. Indianapolis Business Journal, (15), pp. 13.

Zycher, B. (1995-June). Minimal evidence. Reason (27), pp. 44.



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