In a recent debate, the Republicans and Democrats disagreed over proposal to increase the minimum wage in New Jersey to $8.50 from $7.25 an hour (Kosters 114). In addition, the Republicans sought to provide a system that evaluates the annual cost of living and adjust the minimum wage accordingly. On 19th November 2012, the Budget Committee allowed the bill to advance to the next stage by a 7-6 vote margin. However, the bill awaits approval by the Senate to become a law. The bill is designed to increase the minimum wage rate beginning March 1 and implement the cost of living allowances by Jan 1, 2014. Several economists have raised questions about its effectiveness in stimulating the economy. Since early 1990s, most economists and political analysts suggested that increasing the minimum wage destroys or reduces job opportunities. They all had a notion that if the cost of labor is artificially fixed, then the economy will experience a low demand for cheap human resources since the supply will be much higher. This is in reference to the classic law of economics that has lost its relevance in accounting for market forces affecting a modern economy such as that of New Jersey. The relationship between minimum wage and the rate of employment is not determined by the demand and supply forces of the market, but the market power of the employers. Increasing the minimum wage in New Jersey will spur New Jersey’s economy since low-income earners will have more money to spend to meet their basic needs hence boosting the local businesses in this region.

Discussion

In 1992, the senate increased the minimum wage in New Jersey by 20% to level at $5.05. However, no changes were implemented in Pennsylvania as the minimum wage rate remained at $4.25 (Card and Krueger 45). A closer look at what happened in both States reveals an unusual trend in the rate of job employment. Contrary to the natural law of economics, food restaurants in New Jersey did not dismiss workers to maintain their nominal operational costs of running their businesses.

Although the cost of hiring unskilled labor became much more expensive, the rate of employment in New Jersey increased than in Pennsylvania. Even though several economists believe this is an isolated case, it proves that increasing the minimum wage does not necessarily lead to decrease in the rate of employment. A recent study by Boeri and Van carried out in May 2012 in New Jersey is an evidence that sharply contradicts the conventional conception that increasing the minimum wage reduces the rate of employment of unskilled workers (Boeri and Van 85). The reason for this odd behavior is because of increased income caused a direct increase in how much low-income earners were willing to spend.

However, Northwood conducted a similar case study in the San Francisco bay area and was surprised by the employment rates that he recorded in this area. An increase in the minimum wage did not result in any job losses in this area. Businesses in this area experienced increased sales since the employees had more money to spend enabling business owners to afford the high cost of recruiting unskilled labor (Northwood 158). In concise, low paid workers were getting more money, thus they were able to consume more hence boosting the economic activity in New Jersey. Payroll reports obtained from Wendy’s Burger King, Roy Rogers franchises, KFC Franchises reveals this unusual trend employment of unskilled labor after the minimum wage was raised in New Jersey.