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6 Unit 2 Debating Current Issues with The Wall Street Journal Classroom Edition
Unit 2 Debate: The Minimum Wage
This article from the November 20, 1996, Wall Street Journal describes the impact of an
increase in the minimum wage. Read New Minimum Wage Makes Few Waves, by
Wall Street Journal Staff Reporter Christina Duff, to learn more about how changes in
the minimum wage affect workers, businesses, consumers, and the U.S. economy.
Before reading the article below, you may want to look up the following terms: assess-
ment, doomsayers, frets, inflationary, mandate, scrutinizing, spiral, and venues.
WASHINGTONBusinesses have been doing the
minimum-wage shuffle since the 50-cent raise kicked
in on October 1: cutting hours here, boosting prices
there. But it hasnt led to the widespread layoffs and
bankruptcies some foretold.
Before the wage gain became law for some 4
million workers, doomsayers warned of a dangerous
economic shift. Somebodys going to get hurt.
Somebody loses a job or somebody closes up shop,
said Robert Dole, then the Senate majority leader.
The raise will set off an inflationary spiral that
will tax every American family, argued Represen-
tative Robert Walker (Republi-
can from Pennsylvania). The
increase will lead to a loss
of jobs, hitting hardest at
unskilled workers, warned
Bruce Josten of the U.S. Cham-
ber of Commerce.
This hasnt happened.
What has happened, at least
initially, is this: Some employ-
ers are now carefully scrutiniz-
ing who they hire. Others are
selectively passing along the
wage increases to consumers,
through higher prices on one or
two items. And still others have scaled back the
number of hours scheduled for their lowest-paid
workers rather than laying them off, offsetting the
wage increase with higher productivity.
The Labor Department reports that payrolls
actually increased in October for general merchan-
dise and department stores, restaurants, and pubs
venues that most often pay the minimum wage. And
Debating Current Issues with
certainly, theres no sign of the widespread inflation
opponents feared would result. So far, its a non-
event in the overall economy, says economist Donald
Ratajczak of Georgia State University.
The blow was softer than it might have been on
many employers because they already pay more than
the new $4.75-an-hour rate since the labor market is
so tight. Hugh Schmidt, a McDonalds Corporation
franchisee in Vail, Colorado, says he starts workers
at $6.50 an hour and bumps them up to $7 right
away because the slopes, hotels, and T-shirt shops all
vie for the same people.
Supply and demand mat-
ters more than what the mini-
mum-wage mandate is, he
says.
One reason employers
arent cutting jobs is that
theyre instead slashing hours
and spreading the same
amount of work around to
fewer people.
Dollar Tree Stores Incorpo-
rated gave its middle managers
more information about busy
shopping times so they could
schedule shifts more efficiently.
As a result, Dollar Tree doesnt have to lay off peo-
ple, but it could still lower its operating expenses to
27.8 percent of sales in the third quarter from 28.8
percent a year ago.
The company expects these savings will offset
any impact from the fatter paychecks, says H. Ray
Compton, chief financial officer of the Norfolk, Vir-
ginia, variety-store chain.
Its my favorite hypothesis:
Raising the minimum wage
raises productivity, says
Robert J. Gordon, an econo-
mist at Northwestern
University.
NAME CLASS DATE

NAME CLASS DATE

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Unit 2 Debating Current Issues with The Wall Street Journal Classroom Edition 7
Not that spreading the staff more thinly isnt
annoying. At Port of Italy, a restaurant in Spring-
field, Virginia, one recent afternoon, owner Gio-
vanni Coratolo frets because his daytime dishwasher
hasnt shown up. With limited staff in the kitchen as
a result of the wage increase, servers help wash
dishes, and Mr. Coratolo pitches in to mop the floor.
But analysts have argued that becoming more
productiveby learning to get
more done per houris a good
thing for the economy and
workers in the long run. Its my
favorite hypothesis: Raising the
minimum wage raises productiv-
ity, says Robert J. Gordon, an
economist at Northwestern Uni-
versity, Evanston, Illinois. In the
end, a more-productive work-
place creates more jobs and
raises the standard of living, Mr.
Gordon argues.
Edward R. Tinsley III, presi-
dent of K-Bobs steakhouses,
prepared for the wage increase
by raising prices 3 percent to 8
percent, including his chicken fried steak to $5.79
from $5.49. And he began giving potential hires
assessment profiles that are analyzed by a third party
to make sure hes not wasting the extra 50 cents on
unreliable help. Figuring that the minimum-wage
increase will cost him about $350,000 a year, Mr.
Tinsley says he cant afford to make mistakes.
And at first, it looked as if the higher prices
would backfire, as traffic quickly slowed at his 40
restaurants. But maybe the pending election had
patrons sitting on their wallets, Mr. Tinsley figures,
because theyre back ordering beef.
And since many of them are in the lower-income
bracketpaying an average of $7.75 a person for
supperhe thinks maybe the extra minimum-wage
Debating Current Issues with The Wall Street Journal Classroom Edition
1. How did the minimum wage change in October 1996? What other change occurred in September
1997?
2. Recognizing Cause and Effect Why was the blow of the October 1996 change softer on some
employers than it might have been?
3. Identifying Alternatives What alternatives did some employers use to lessen the impact of the change
on their bottom line? (List at least three.)
QUESTI ONS FOR DI SCUSSI ON
money in their pockets is actually helping business.
Our employees are our customers. And if employ-
ees have more buying power, they have more money
to spend, he says.
In Pembroke Pines, Florida, Claires Stores
Incorporated is also finding that paying lower-wage
workers more may actually be a business boon. The
increase will cost the fashion-accessory chain
of 1,550 stores as much as
$400,000 a year, says Glenn
Canary, director of investor
relations, a trivial amount of
money.
Balance this out with the
fact that the target customer is
a 16-year-old high school
junior who now pockets more
money from her part-time job,
helping boost Claires sales in
October at stores open at least
a year a healthy 7 percent
above the year-earlier period.
At worst, says Mr.
Canary, the wage increase is
a wash.
Of course, the pain many wage-boost opponents
warned about may still strike in the future. All of the
economic, academic research ever done on raising
the minimum wage says so, according to a spokesman
for Mr. Josten of the Chamber of Commerce.
The wage floor bumps up again to $5.15 an
hour next September. And some states are raising
their pay floors beyond the federal standard. As a
result, Federal Reserve officials generally expect that
the economy will eventually create 100,000 to
200,000 fewer jobs.
As for inflation, its a little too early for that to
be seen, says Representative Walker. Wait until six
or nine months down the road, when the cycle plays
itself out.
The pain many wage-boost
opponents warned about
may still strike in the future.
All of the economic, acade-
mic research ever done on
raising the minimum wage
says so.
NAME CLASS DATE

Helped Hurt
Young and/or Inexperienced Will have a harder time getting
Workers entry-level jobs because of higher
labor costs
Older and/or Experienced Workers
Business Owners
Consumers
The U.S. Economy Increased productivity

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8 Unit 2 Debating Current Issues with The Wall Street Journal Classroom Edition
Debate Activity Sheet:
The Impact of Policy Changes
Whenever any policy is changed, different groups of people are affected in different
ways. Who is affected by changes in the federal governments minimum-wage policy,
and how are they affected? Review the excerpts from the two minimum-wage articles in
the text and New Minimum Wage Makes Few Waves (on the previous two pages of
this booklet). Then use this activity sheet to provide at least two examples of how each
of the affected parties is helped as well as hurt by an increase in the minimum wage.
You can use this information to back up your arguments in the debate. Weve given
you a start with two examples.
Debating Current Issues with The Wall Street Journal Classroom Edition
How Are They Affected?