The Negative Effects of Raising the Minimum Wage Essay

From a small business owner perspective, it is safe to say people are split 50/50 about raising the minimum wage. The supporters think a raise will have more positive externalities than negative. For example, some predict more money will be in worker’s pockets which will allow them to buy more goods from small businesses and therefore, aid small businesses (Harrison, J.D., 2014). Continuing with this idea, if worker’s have more money, then there will be more money put back into the economy, in general, benefitting all businesses—not just the small ones. Another prediction, from small business owners, is increased worker productivity. This increased productivity is caused by the incentive to work hard when it is rewarded (Harrison, J.D., 2014).

A higher minimum wage is deleterious to the fragile American economic system. Raising the minimum wage is often cast as a necessity to ensure that employees are able to earn a decent living. But it’s also a complicated issue that goes beyond those who clean bathrooms, flip burgers, and bag groceries. It´s implications directly affect business owners and how their businesses are run. A higher minimum wage is detrimental to the economy because it devalues the dollar bill, is bad for small businesses, and causes severe increases in unemployment.

Increasing the minimum wage helps people, right? That is the topic of discussion in the recent discourse held by Professor Joe Silverman. With so many differing opinions it was a topic that needed to be addressed. The listeners, most of whom had minimum wage jobs, were exuding anticipation as this topic truly applied to them. Who “wins”, and who “loses” were the focus of the talk that addressed both the benefits and disadvantages of a raised minimum wage.

In both economic studies and in practice little—and often, no—negative effects on employment following the increase of minimum wage have been shown. This is even true during weak times in the labor market. Further more, increasing the federal minimum wage could even go as far as stimulating our national economy. When minimum wage worker’s incomes are increased to a livable wage, their purchasing power increases. This power could raise the demand for products these workers weren’t previously

There is also data that suggests that employment would not have a high increase in termination based on increased employer costs. “A related issue is whether some low-income workers will lose their jobs when businesses have to pay a higher minimum wage. There’s been a tremendous amount of research on this topic, and the bulk of the empirical analysis finds that the overall adverse employment effects are small.” (Romer 2) “Some evidence suggests that employment doesn’t fall much because the higher minimum wage lowers labor turnover, which raises productivity and labor demand.” (Romer 2) Increasing minimum wage increases the benefits to the individual to maintain their employment status making the cost of going to work, such as the loss of free time or inability to get up later in the morning due to having to go to work, lower than the benefit of having a usable income.

In this paper I’m going to answer the following questions with regards to the situation when a higher minimum wage is enacted: will the number of workers hired change? why? what might be an unintended consequence of a higher minimum wage law designed to help low income workers? To further entail other requirements, this paper is aimed to be at least a 1-2 page, font size 12, double spaced, Times New Roman font, and lastly, include a reference list.

According to conventional economic analysis, increasing the minimum wage reduces employment in two distinct ways. First, higher wages increase the cost to employers of producing goods and services. The employers then pass some of those increased costs on to consumers in the form of higher prices. These higher prices then leads to lower sales, as consumers buy less goods and services. This can lead to a loss of revenue for businesses and organizations who then may have to lay off workers or reduce higher paid worker salaries. The employers consequently produces fewer goods and services, so they hire fewer workers if they hire any workers at all. “This is known as a scale effect, and it reduces employment among both low-wage workers and higher-wage

This would mean that workers will be pushed out of jobs and business will be conducted by self-service for example using a kiosk or an app to pay remotely. The CEO of an advocacy group for Business for a Fair Minimum Wage disagrees and stated that it will have a positive effect. The CEO thinks that minimum wage is outdated and that $7.25 has less buying power than it previously did approximately 50 years ago. When workers have less buying power, consumer spending is much less. Franchises and small business will benefit paying a higher wage because there will be less employee turnover. Business owners will need to train employees less have time to plan for more long-term needs. There will be more productivity and more customer satisfaction (Dailey,

Second, the increasing minimum wage raises the relative cost of low-wage workers more than the other inputs parameters that firm use to produce goods and services. Those other parameters are perhaps even vital, as whole, for any firm such as: latest machineries and technology to improve production capacity or even hiring high skilled productive workers. Most of the firms cut down low-wage workers from their budget and focus more on other input parameters. This would reduce employment in low-wage but increases it among higher-wage

reducing the marginal cost of labor. How could this be? We just looked at the supply and demand curve which shows us a minimum wage does the opposite, but this was assuming it was a price floor set above the equilibrium. If legislation sets the minimum wage at a market-clearing level if the market was competitive, employment will be maximized. Minimum wage laws are beneficial to society as long as it is set at a market-clearing level. This study found they could not find any evidence that minimum wages themselves have negative employment effects.

Many Americans think of the minimum wage as a means of raising the income of the working people. However, the minimum wage is not the best way to combat poverty. In fact, the minimum wage does more harm than good. The list of its negative effects is a long one: it causes unemployment; it prevents unskilled workers from getting the on-the-job training they need; it encourages teenagers to drop out of school; it promotes the hiring of illegal aliens; and it increases welfare dependency. For all of these reasons, the minimum wage should be eliminated.

While we all know that a higher than minimum wage income would go a long way towards raisin economic standards of areas where minimum wage jobs are prevalent, a higher minimum wage could also have adverse effects as well (Laffer, 2016). For employees, minimum wage work translates into income, standard of living, education and taxes which make up our entire economy (Laffer, 2016). For employers, minimum wage creates competitive pressures and productivity, taxes and living standards for investors, suppliers and employers themselves (Laffer, 2016). Minimum wage reduces job growth over several years and for every 10% increase there is a 1-2% reduction in low-skilled employment (Neumark, 2015). However, it’s not just employers and employees

Minimum wage was established in 1938 to stabilize the post-depression economy and prevent exploitation and to stop people from getting taken advantage of. They called it the Fair Labor Standards Act, so this also meant employers were responsible for paying overtime. It was designed to create a minimum standard of living while protecting the health and wellbeing of employees. Several studies have suggested that minimum wage rising, also known as wage spike, is hurtful to small businesses (Dixon; Ucilia). As minimum wage rises it becomes harder for employers to hire low-wage workers because they are faced with higher labor costs. Businesses can try to raise their prices and lay off workers to cut their profit margins. However, it doesn’t always work out. This leaves small businesses choosing between letting employees go or accepting lower profits. Can raising the minimum wage really benefit low wage workers and at the same time not put small businesses out of work?

In early 2017 the Democratic lawmakers introduced a policy that would increase the federal minimum wage to $15, more than double the current minimum. While Democrats and other supporters of the proposal argue that the higher wages will have an overall benefit to these wage earners. Economic experts like David cooper say, “the minimum wage would no longer be a poverty wage. It would enable tens of millions of millions of adults to improve the conditions of their families and in turn their communities.” Despite all of these positives, more economists have determined that the overall impact of a higher minimum wage would negative. These economists are against the raise in wages because the higher cost of labor will make it harder for vital small businesses and even large corporations to grow and expand, it will also drive prices up, and will reduce the overall skill of the work force. Overall, the federal minimum wage should not be increased because the higher price of labor will cause a slower rate of growth in the number of jobs, increases prices, and decrease the skill of the labor force.

Due to the many changes in the economy world on how much things will cost due to the increase in pay outs. With many people on government assistance the increase in wages will cause many families to louse their benefits. The major disadvantage of higher wages is the decrease in opportunities for the younger adults and college graduates because its going to stop many of the younger generation to not pursue a higher education because of the few opportunities that are going to be afford to anyone due to the decrease in job hiring. It causes many complications in the way of life with the increase due to the changes that will have to be made to adjust to the wage