Raising the Minimum Wage
In recent decades, income inequality in America has increased considerably. Addressing the problem through raising minimum wages has sparked debate in the political discourse about its impact on the economy. Increasing the minimum wage will not harm the American economy, but will rather help it rejuvenate. The federal and state governments should raise the minimum wage because it will help rejuvenate the American economy.
Raising the minimum wage would stimulate economic growth. A higher minimum wage would result in increased incomes earned by the working population. The increased disposable income will encourage spending and savings amongst the population. The increased spending will boost the demand for goods and services, thereby encouraging more production to meet the demand. Increased production can mainly be achieved through purchasing more raw materials and hiring more workers, thereby causing overall economic growth. For instance, a recent study by the Federal Reserve Bank of Chicago established that an increase in the minimum wage had raised the expenditure of a household having at least one minimum-wage worker by $700 per quarter, and created over a hundred thousand new jobs (“The Case for a Higher Minimum Wage”).
Raising the minimum wage would reduce the employment rate, thereby resulting in economic stagnation. Raising minimum wages when the economy is performing poorly provides employers with little, if any, incentives to boost their workers’ wages. The wage increases would raise the cost of production, thereby reducing the profitability of businesses. To maintain business profitability after an increase in the minimum wage, employers will be forced to maintain or lay off some of their workers. The increased unemployment rate will reduce the overall demand in the economy, scale down production activities, and less demand for raw materials and labor. For instance, the unemployment rates in the states of Alabama and Tennessee dropped by 1.6 percent and 1.4 percent, respectively, following the 2009 minimum wage increase (“Minimum Wages: The Logical Floor”).
In conclusion, it is evident that raising the minimum wage would do more good than harm income inequalities and the economy. It would not only reduce the income inequalities in America, but would also result in increased employment rates, and rejuvenation of the entire economy due to the increased aggregate demand instigated by the higher disposable income by a majority of the working population. The federal and state governments should raise the minimum wage because it will help rejuvenate the American economy.
“Minimum wages: The logical floor.” The Economist (From the print edition), 14 Dec. 2013. Web. 17 Apr 2014. <http://www.economist.com/news/leaders/21591593-moderate-minimum-wages-do-more-good-harm-they-should-be-set-technocrats-not>.
“The Case for a Higher Minimum Wage.” The Editorial Board, The New York Times. 8 Feb. 2014.Web. 17 Apr 2014. <http://www.nytimes.com/2014/02/09/opinion/sunday/the-case-for-a-higher-minimum-wage.html>