"Living Wage" Roulette: A Bigger Paycheck, Or a Pink Slip?.
The New York City Council is thinking about passing a law that will raise the wages of workers receiving low pay from city contractors and companies that receive large tax breaks from the city. Professor David Neumark claims that these laws will increase unemployment based on studies that he's conducted in other cities that have already passed such legislation. He feels that it's really a mixed bag because on one hand it will increase the wage floor helping out many workers, but on the other hand it will put some people out of work. It will put some people out of work because companies that now have to pay these people more will have to cut some jobs as well to keep their profit margin at a reasonable level. There is a good example of this in the article "Rick Frederico, chairman of a restaurant chain, P.F. Chang's China Bistro, said he might lay off 40 of the 125 employees at his upscale restaurant in Santa Monica if he is forced to give $3-an-hourraises to the many workers who now earn $8. He said he might eliminate several dozen assistant waiters" jobs. "I estimate that it will cost us $600,000 a year, which would pretty much wipe out our profit margin, Mr. Frederico said. "And we won't be able to pass it along through a price increase."".
Although unemployment will rise as an effect of this law Professor Neumark believes that this is a good law because it will reduce the scale of poverty in the cities. On the Phillips curve it shows how with the rise in unemployment there will be lowered inflation unless there is a rare occurrence of "stagflation". So on a grand scale this may take more money out of the economy, thus reducing inflation and raising the value of the dollar. On the curve shown below 1 is before this law is passed and 2 is after the effects of this law have taken place:.
Mayor Bloomberg of New York is against this law because he believes that this will just widen the cities deficit.