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Thursday, July 17, 2014

Advantages and disadvantages of raising minimum wage

Minimum wage increases
Effects of minimum wage differs between businesses
Minimum wage is an ongoing and contentious issue because of its impact on taxpayers, businesses, government budgets and the economy as a whole. Numerous advantages and disadvantages are thought to be associated with raising the minimum wage, but evaluating whether or not these understandings are correct depends on ever-changing market conditions, the commercial regulatory environment and the validity of research results. A recent example of the debate surrounding increasing the minimum wage is evident in the Minimum Wage Fairness Act, which according to Gov Track, has a minimal chance of becoming U.S. law.


The business perspective on raising the minimum wage is controversial because a higher employer cost influences different businesses in various ways. For instance, some businesses have profit margins that are too slim to accommodate higher employee wages without raising prices for consumers. Other businesses contend that lower employee turnover, higher productivity and even service related revenue increases make up for the lost income from raising the minimum wage. Furthermore, many businesses already have minimum wages above legal requirements in order to attract talented labor per Sharon Hadary, the founder of the Center for Women's Business Research.


In many cases, the effects of a higher wage for workers differ based on individual employee characteristics, the specific industry and client demographics. Nevertheless, higher median incomes do imply a greater standard of living for more people. In turn, this helps increase personal expenditures that businesses often rely on, according to Bloomberg. However, if more jobs are lost than are created, or if more income is lost from layoffs than is dispersed through income raises, then the advantages of higher minimum wage are not necessarily convincing.


According to the Congressional Budget Office, raising the federal minimum wage to $10.10 per hour would have many positive benefits. Moreover, the CBO study claims that increasing minimum wage would put 900,000 people above the poverty line and make a higher income possible for 16.5 million people per the Public Broadcasting Station. However, claims like these are opposed by competing research and arguments that refer to contrary evidence and other logical ways of thinking about the issue. For example, tax credits are another way to raise net income for poorer income earners.


A fundamental question about the value of legislatively raising employee incomes is whether it creates, reduces or redistributes wealth. In other words, what is the net benefit to an economy? Some research exists that demonstrates the product of higher employee costs is reduced commercial competitiveness, and still more research exists stating higher wages raise unemployment. Yet, according to the Economic Policy Institute, job losses associated with moderate minimum wage increases are invalidated by improvements in empirical research. Additionally, redistribution of wealth via higher employee income is more likely to raise consumer loan activity, aggregate consumer spending and capital investment, all of which are positive economic impacts.

Depending on how much a minimum wage is increased, the commercial and economic effects will vary considerably. The greater the increase, the more pressure it places on businesses that are already operating in the red or close to it. Yet, perhaps culling weaker businesses is economically cathartic in the sense that a lower minimum wage acts as a business subsidy. The advantage to the economy, the job market and national income levels rather than individual businesses is arguably of greater importance due to the benefit to society as a whole. However, in any case, accurately measuring and quantifying the advantages of a minimum wage increase is essential to its effectiveness.

Image license: Vargklo, US-PD