Last week the minimum wage was increased to $6.55 an hour as part of a multi-year plan to raise minimum wage from $5.15 to $7.25 an hour by this time next year. While many states already have minimum wages above the federal minimum, this will have some type of impact on millions of US Americans.
So the great debate is whether an increase in the minimum wage will do more hard, or good. Extremists will say its either destroy small businesses because they can’t afford to pay workers and make a profit or deal with the poverty and crime that would results from a lack of sufficient income to support a family. Naturally, we’ll look at both.
Pro Increase: The obvious advantage of an increase is the improvement in living conditions for the poorest demographics around the country. These workers often rely on government handouts to support themselves(food stamps, welfare, etc). Raising the minimum wage will reduce the financial stress on these programs. Anti-government types would love that. With less to pay out to the poor our tax burden would decrease (I didn’t say taxes, I said tax burden). Since people in these working conditions often spend every dime they make, their spending would increase; a well known economic stimulus. I would also add that the increased labor costs would drive business to become more creative in finding efficiencies; a long term economic stimulus.
Anti Increase: ”For every action there is an equal and opposite reaction” True that Newton. He was talking about physics, but it could be applied to economics as well. First of all, the small businesses will hurt most by this increase. Long considered the back-bone of the economy you don’t want these people struggling with their already small margins. To offset the costs they might have to raise prices or lay off folks. So we’re dealing with either increased inflation or unemployment – both hot topics right now in these times. There is a risk of increased outsourcing. Everything from production facilities to administrative assistants can be outsourced to other countries now. Generally the low-wage jobs are the jobs that are the easiest to outsource.
We’re surely in danger of shooting ourselves in the foot here. Do you need to pick a side? No. In truth we’re only dealing with moving around fractions of a percent. Unemployment +.01% and welfare spending -.01%. The back and forth trade off has continued for decades in this globalized world.
Since you respect my opinion so much I’ll let you know where I stand. Having at one point worked for minimum wage, I stand by the decision to increase the minimum. It wouldn’t make it on my top 50 issues for an election year, but its important we all understand why the minimum wage controversy exists.
Interesting sidenote: the bill has a very long name and covers a lot of stuff other than minimum wage. I would go so far as to say the minimum wage aspect was an earmark or last minute addition. This is not confirmed. Here is the Wikipedia article on the bill.
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
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