There has been long debate for increasing the minimum wages in the United States. Many believe that the increasing of minimum wages would reduce employment. But some economists argued that the companies may simply automate and raise their prices.
The debate also talked about the need to improve jobs for the low-skilled workers who may lose their jobs due to minimum wage increases. This decision can help people to rise out of poverty but it will cost jobs of less skilled workers.
At the same time, businesses have been trying to automate more and more parts in the production process to reduce costs. One of the classic example is the last drive-through service inside McDonald’s restaurants which no longer accept cash payments, but only credit card payments. Instead of cashier, the employees just handle the credit card machines.
The increase of minimum wage has been an issue in Canada as well, where some companies argued it would not be easy for them to pay the increased wages.
The federal minimum wage in the United States is about $7.5 per hour. That wage was established by the Fair Labor Standard Act in 2009 and tipped employees must receive about $2.13 per hour in cash wages and ensure that minimum $7.25 wages must be met.
At the state level, the minimum wages law in the United States is completely different. Moreover, currently, there are 29 states which mandate about higher minimum wage than the national minimum, and they’re also exist eight states that have legislation that requires minimum wage to rise through automatic adjustments.
Though $7.25 should be the minimum wage there, two states have low minimum wage as compared to the national rate. Washington State currently has the highest state minimum wage as of 2018 that is $11.25 per hour and in this article, we are going to have a look at the pros and cons of minimum wage in the USA.
Pros of increase in minimum wage USA:
1) Create more fair wealth distribution:
The primary gain in wages and income has been within the top of the US economy since 2009 and in 2017, the wage growth for the entire economy rose faster than it has since 2009. At the same time, the actual value of those wages has decreased since 1980 for a household with the middle class and by increasing minimum wage, a great distribution of economic wealth will be directed towards working for the poor class first.
2) Increase the tax revenue for government:
Raising the minimum wage has been beneficial for the federal government as it would help in the government’s revenue generation. If the government wants to have enough fund for providing social services to the working class, which it is the primary priority of the US government, it is always better to increase minimum wage first.
They are paying more in taxes when workers are earning. A full-time single worker earning minimum wage will have an income tax bill of about $2500 before deductions and that’s on a salary that may only be a total of $15, 600.
Moreover, after deductions, many workers in this category pay very little if any income tax on this wage, and by increasing minimum wage, and increased tax pool is created and it generates more revenue for needed service in each community.
3) Economic stability:
For many years, most of the low-skilled people in the United States have not received their paychecks until the last week of the month. With the increase in minimum wage, most of the lower-skilled workers would receive their paychecks on a much faster way. This would definitely improve the economy of the US.
4) Reduce poverty:
Recent studies conducted by CBO states that an increase in federal minimum wage could raise more than 900,000 households of poverty in the United States and there will be likely people who lost their jobs in aftermath of raising the minimum wage. The working poor class could see immediate economic benefits and most workers see real wages increased after minimum wage. On the other hand, a decrease in real income begins after households that earn an income six times higher than the poverty rate and more raise in minimum wage grow more steadily.
5) Health benefits for employees:
Minimum wage rate increase will allow workers to have more choices in the type of healthcare insurance they would like to buy and having an increase in minimum wage, employees would be able to have access to better healthcare services like having better hospitals in their city or getting a better hospital near their home.
6) Reduce the wage gap for women and minorities:
The wage gap between women and men grew about by 0.1 percent and from 2016 to 2017 it emphasized equality in worker wages that has been present since the 1980s and between 2008 to 2017, the wage gap between men and women decreased by just 2 percent. On the other hand, for Hispanic women, the disparity between Caucasian male and she make the same position and is even greater at 54.4 cents to the dollar and instead of creating legislation that maintains a closure of wage gap and increasing minimum wage can grow economic development more naturally.
7) Increase economic growth:
A study conducted by IMF in 2017 states that an increase in minimum wage has been a critical factor for the economic growth of countries like China and the United States. With an increase in minimum wage, economic growth increases and a better representation of ethnic groups with increase in minimum wage. However, if the minimum wage is too low, it will have some harm to certain industries and employers are more likely to be there than non-existent.
8) Reduce the need for welfare programs:
Many workers who pay minimum wage tend to rely on safety-net programs to supplement their basic needs and they may also use local food banks.
Other social services take up a portion of available taxpayer dollars and by reducing the minimum wage, the reliance on such programs can be lessened.
Although the benefits of a household bottom line tend to be better with a raise increase than without it and prices may go up in conjunction with the rise in wages somewhat.
Access to health insurance and education may be much easier to afford and more affordable.
However, these factors would have great impact on those in poverty but those with higher incomes would see more rewards from the wage increase. The increase in minimum wage can provide stability for a workers pocket book and a better-paying job for those who want a better wage and a chance to build a family.
9) Workers are given more localized spending power:
Raising the minimum wage helps to increase revenue within the community and local dollars have almost twice the direct and indirect value when compared to spend money outside of the community. That means that people who money get the opportunity to meet their basic needs more effectively and as money is spent, more people down the chain of purchasing gain these benefits as well.
10) Wage inequality within different minority groups:
Many people of color fall on the lower side of minimum wage pay range with Black women making the lowest pay at $5.15 and Latino women making the highest at $8.00 per hour. Raising minimum wage to help even out wage inequality is a great policy because a lower pay may mean less expenses for a Black woman and a higher pay can benefit a Latina woman in the long run.
11) High GDP growth
A high GDP growth will increase the wages of workers in the short term and lessen the inequality of pay. However, research also shows that businesses will increase wages for their workers for a while after the wage increase but it is not common.
12) Stimulate the economy
Raising minimum wage will provide an additional revenue for the government and it will increase the number of workers in the workforce which in turn increases the spending in the economy and the workers and companies in the area will see an increase in sales.
How many cities will go against the grain and raise their minimum wage this year? Share your opinion in the comment section below.
Cons of increase in minimum wage USA:
Raising minimum wage creates additional costs for small businesses, reduces the need for expansion , encourages businesses to shut down operations, and eliminates jobs. Also, among the major disadvantages of raising the minimum wage is the likelihood that businesses will increase their prices, thereby fueling inflation.
1) Businesses have less control over costs
Businesses are not able to raise prices without risking losing clients or a high-spending customer. With such costs being passed on to the end consumer, the cost of living will increase.
The rising minimum wage also increases the cost of doing business within the state and some businesses will likely choose to close their doors. In the end, people who earn low wages may be adversely affected by the rising minimum wage as they are often the working poor, who might see their wages decline or not increase at all.
2) Cost to the employers
By raising the minimum wage, the employers are forced to pay more and this revenue may not support this higher payment, and labor cost is one of the largest expenses employers face.
That means some employees will make more because of the mandated price rise and others will find them out of work because their employees can only support a certain amount of laser expenses. This gives rise to workers potentially accessing unemployment benefits and it places a secondary stain on the economy.
3) Affordable childcare would be restricted
Children are expensive to raise and yet those who can afford to raise children are encouraged to do so to be great parents and enjoy the many benefits of parenthood. Raising the minimum wage could discourage some women from becoming pregnant or putting their lives on hold in order to have a family.
4) Disproportionate impact on a few sectors
Low-wage workers are primarily white women, so raising the minimum wage might have an disproportionate impact on women rather than men. Also, people of color will still be underpaid in comparison to white men in the labor force because of the unique challenges they face with higher prices and less job availability.
5) Increased poverty
Raising minimum wage is a burden on those with a limited budget. A higher minimum wage will force some to spend more money on food, utilities, and transportation. This is exactly what we’ve seen happen when other states increased their minimum wage. Families are forced to live on smaller budgets and go without food, utilities, and transportation.
6) Unintended consequences on young people
Young people are more likely to live with their parents than in a group home or live independently. With an increased minimum wage, more young people will be forced to live with their parents and may find themselves having to move back into their parents’ home to save money. This will result in an increase in child poverty.
7) Increase the cost of goods or services
Increasing the minimum wage does not generate more personal income and it encourages high costs for goods or services performed in the community and this, in turn, creates scalability issues that can negate the overall impact of higher minimum wage.
It may increase the overall cost of living for everyone. It then creates a cycle where an even higher minimum wage would be required to help people make ends meets.
8) Encourage more student dropouts:
Some students may decide to stop going to school to enter their chosen vocation when there exists a higher minimum wage.
Those who would either not qualify for college or wish to work in a vocation that does not needs any formal degree those students are almost at risk for this decision. Hence, this could depress the economy over the long term as individuals without a diploma will be able to earn about 40 percent less than individuals who have a formal degree and have done graduation.
9) Rewards inexperience:
It creates a disincentive for workers to pursue further training opportunities especially when workers can earn a similar wage without experience as compared to those with experience.
Raising the minimum wage in the USA has pros and cons which are important to consider and there also exist economic benefits which may occur with such an action. It should also be noticed that Washington State was the highest minimum wage and was ranked as the top economy in the USA in 2017.
How do you feel about the idea of the minimum wage increasing? Please share your thoughts below in the comment section.