Economists are bitterly divided on the issue of minimum wages. Some believe that setting minimum wages actually hurts the poor, because when costs rise for employers, low wage workers are the first to go. This is the prevailing arguement in neoliberal economics. Goverment intervention into the labor market actually causes unemployment. Many believe it also causes inflation. When wages artificially rise, employers will raise the costs of thier product, passing it onto the consumers. If all product prices go up (inflation) the real purchasing power of the minimum wage decreases.

One way to test this theory is to look at the effects of minimum wage in the past. Normally, "increases in the minimum wage coincided with expanding economic activity...A reasonable question is whether employment would have grown even more if an increase in the minimum wage had not occurred" (Nordlund 143). According to various studies in the 1970s, the only workers laid off where those who productive potential was lower than the set minimum wage. This was often the case with teenagers. In a 1970 survey, minimum wages may have reduced employment of 14-15 year olds as much as 56% (Nordlund 144-147). However, in similar studies and surveys done in the 1980s and 90s, "there appears to be no realtionship between unemployment and minimum wage in this time period" (Pollack and Luce 34). Results were scattered and inconclusive for the minimum wage effect on teenagers as well (39). In a case study in New Jersey, employment actually increased when the minimum wage increased. This was also the case with the California increase in minimum wage in 1988 (41). This phenonmenon in an actualy increase in employment is due to productivity. In Los Angeles, a subsidized meat packing plant was forced to obey city of L.A. living wage ordiances. The firm reported numerous benefits due to the living wage, such as "reduced turnover, higher productivity and quality, great flexibility, enhanced cooperation with management..." (158). According to this study, a living wage may actually encourage competition among workers to a better working morale. The most widely cited study in the employment effects are is Card and Kruger's. They conclude by stating,"we believe that, on average, the employment effects of a minimum wage increase are close to zero" (353).

Many economists are concerned with the inflationary effects that an artificial wage increase could create. This would be especially true according to the Card and Kruger study. If firms are not reducing profit by laying off workers, they have to recoup thier costs somewhere. Although Pollin and Luce argue that costs are almost fully recouped in increased productivity, the Public Policy Institute of California does not agree. According to thier studies on minimum wage increases, families in California payed $133 dollars per year more in consumption due to increased prices to pay for minimum wage (37). The study shows that inflation does not rise drastically. According to Nordlund, "Research shows that a 10 percent increase in the minimum wage leads to about one tenth of 1 percent increase in inflation" (149). Although studies differ in the extent to which inflation increases, it is shown that the increase is minimal. Increased productivity pushes down prices, thus offsetting possible inflation. However, costs of living wage are not passed on citywide to all consumers, because most living wage ordinances are not mandates for all business; they are only mandates for city funded projects.

Living wages are not free. In fact, since most living wage ordinances are set by the city governments, the wage applies to government employees. This means the city and its taxpayers bear much of the burden to pay the living wage. However, many of the higher costs of a living wage are offset by the amount the city saves on social services. When people are paid enough to make a living, they do not need food stamps, medicare, welfare, and government programs. It is uncertain and very difficult to determine, however, the actual cost benefit analysis in this scenario. One way to look at cost is through the cost for minimum wage. In the federal minimum wage increase in 1998, labor costs increases for consumers were $1.40 billion. This cost exceeds the benefit of $1.11 billion by $296 million (Public Policy Institue 45). However, the costs of a STATE wide increase in wages instead of a FEDERAL increase in wages is much lower. The state only minimum wage increase costs falls from $1403 million to $976 million (47). Following this model, the costs of wage mandated increases fall every time it is brought to a smaller scale. From national, to state, to city, and to our University. The economy of Santa Clara is a bit harder to connect with the economic impacts of national increases in wage. To date, no study has been done on possible inflation or unemployment rates on our campus. However, according to Bon Appetit, living wage costs in our school primarily fall upon student resident dining plans. We pay to increases the livlihood of the workers preparing our food. The debate now becomes an ethical issue: How much is the poverty of Bon Appetit workers worth to you? Students have been working on this issue for quite some time.