Why is raising minimum wage good for the economy?
By boosting the income of low-wage workers who have jobs, a higher minimum wage would raise their families' real income (that is, income adjusted to remove the effects of inflation), lifting some of those families out of poverty.
Increasing the minimum wage would have numerous social benefits including reducing poverty and crime, and increasing school attendance and the healthy population. A 2022 Urban Institute study found that “[i]ncreasing the…
- Helping Families Get Out of Poverty. ...
- Increasing Consumer Spending. ...
- Increasing Federal Revenues. ...
- Increasing Employee Retention and Performance. ...
- Increasing Labor Costs and Unemployment. ...
- Increasing Cost of Living.
Key Takeaways
Some economists argue that raising the minimum wage artificially creates imbalances in the labor market and leads to inflation. Other economists note that when minimum wages have been raised historically, inflation did not follow.
Recent studies have shown that minimum wages not only help to reduce wage dispersion and to channel productivity gains into higher wages, but they also can contribute to higher labour productivity – both at the enterprise level and at the aggregate economy-wide level.
They found that a higher minimum wage does motivate workers to be more productive, which moderates the cost of higher wages and leads to a stronger labour pool overall. It also creates a spillover effect: when the lowest-paid workers are paid more, the pay of other workers climbs as well.
Minimum wages have been justified on moral, social, and economic grounds. But the overarching objective is to boost incomes and improve the welfare of workers at the low end of the ladder, while also reducing inequality and promoting social inclusiveness.
Most of the direct beneficiaries of a new minimum wage are women (57.9%) and minority men (6.3% are black men, 7.3% Hispanic). Nearly half (47.2%) of those benefiting from the new minimum wage are full-time workers; an additional third work between 20 and 35 hours weekly.
Multiple studies conclude that total annual incomes of families at the bottom of the income distribution rise significantly after a minimum wage increase. 56 Workers in low-wage jobs and their families benefit the most from these income increases, reducing poverty and income inequality.
Effect of higher minimum wages on economic growth
If workers receive a pay increase, then there will be a rise in consumer spending. Low-income workers are likely to have a higher marginal propensity to consume (in other words they spend high % of extra pay).
Will raising the minimum wage have a more positive or negative effect on society?
Independent academic research repeatedly finds that minimum wage increases reduce employment and on-the job training and benefits, while increasing school dropout rates.
Minimum wage increases have trivial effects on inflation
If every penny of this higher minimum wage fed directly into higher prices—that is, none of it was financed by higher productivity or lower profits—the move to $15 would create a one-time step-increase in the overall price level of less than 0.5%.
The Bottom Line
Increasing the minimum wage is expected to lift individuals out of poverty and improve work ethic, however, it also comes with many possible negative implications, such as inflation and a loss of jobs.
Raising the federal minimum wage to $15 an hour would improve the overall standard of living for minimum wage workers. These workers would more easily afford their monthly expenses, such as rent, car payments, and other household expenses.
A $15 minimum wage by 2025 would generate $107 billion in higher wages for workers and would also benefit communities across the country. Because underpaid workers spend much of their extra earnings, this injection of wages will help stimulate the economy and spur greater business activity and job growth.
A $15 minimum wage by 2025 would generate $107 billion in higher wages for workers and would also benefit communities across the country. Because underpaid workers spend much of their extra earnings, this injection of wages will help stimulate the economy and spur greater business activity and job growth.
The purpose of minimum wages is to protect workers against unduly low pay. They help ensure a just and equitable share of the fruits of progress to all, and a minimum living wage to all who are employed and in need of such protection.
Key Takeaways. Despite efforts to raise the minimum wage, no bill has successfully passed both chambers of Congress. Proponents of raising minimum wages argue that changes are needed to help incomes keep pace with increasing costs of living, and a higher minimum wage will lift millions out of poverty.
A higher minimum wage will most benefit families with the least income low- income and lower middle-class families. Seventy-six percent of the benefits of the Clinton minimum wage proposal will go to working families with below average incomes.
Put simply, increases in the minimum wage increase labour costs to employers who respond by reducing the number of employees and/or the number of hours worked. A recent study by two of the world's most renowned minimum-wage experts, University of California Prof.
Does raising minimum wage cause inflation?
Minimum wage increases have trivial effects on inflation
If every penny of this higher minimum wage fed directly into higher prices—that is, none of it was financed by higher productivity or lower profits—the move to $15 would create a one-time step-increase in the overall price level of less than 0.5%.
Two things happen when the government imposes a minimum wage: The amount of labor hired in the market decreases. In our example, the number of unskilled workers employed decreases from 1,000 to 800. Thus while those who have jobs earn a higher wage, there are now some individuals who no longer have jobs.