The debate about increasing the minimum wage is one of the most contentious ones. This debate has surfaced in the parliaments and amongst economists of almost every country on earth. With President Biden’s election into the office and his promise of increasing the minimum wage to $15, the debate has come to the mainstream again.
Historically, economists have had opposing views regarding the minimum wage. Some think it should be abolished, while others propose a high minimum wage for very different reasons. Let us discuss why economists have different views regarding it.
The Opposition to Minimum WageÂ
In economics, the labor market, like all other markets, is governed by supply and demand laws. The labor force is supplied, whereas the wages are the prices. Therefore they argue that with the increase in the minimum wage, the cost of labor increases. This results in a decrease in demand for labor. This has led to rampant unemployment.
Another point that these economists cite is that if businesses retain their employees despite the increased minimum wages, it will have other consequences. One consequence is that it will add to the costs of producing goods. Thus, to be profitable, businesses will increase the prices of the goods produced. This will result in higher inflation.
This higher inflation will cancel out the benefits. Thus, there will be no net positive impact of increasing the minimum wage. This minimum wage will also encourage high school students, which is unskilled, to make up a significant chunk of minimum wage workers to drop out of schools as the wages are high.
Now we discuss the reasons for increasing the minimum wage.
Improves Standard of Living
The majority of the workers that earn a minimum wage belong to the low-income segment of society, with an increase in the minimum wage, their income increases, improving their standard of living of the poorest population.
These statistics show that minimum wage can positively impact people’s living standards across the globe. It also can bring an end to poverty in developing nations.
The wage increase can have a more significant impact as well. It is because most of the low-income households have more than one person working on the minimum wage. Thus, an increase will improve their standard of living many times the minimum wage’s proportional increase.
A report by the Congressional Budget Office suggested that increasing the wages to $15 would significantly improve the living conditions of more than 15 million US citizens. It will also elevate more than a million that currently live below the poverty line.
Increase ProductivityÂ
According to classical management theories, all other things are kept the same; the worker’s productivity is directly related to the reward, mostly the paycheck. Thus, an increase in the minimum wage would result in greater productivity of the workers that mostly work in factories and production lines.
This increased productivity will benefit the company’s profitability and the country’s overall economy. It will be a win-win situation for both. This notion also rejects the proposition that minimum wage will result in less profitability for the company and an increase in inflation.
Boost for the EconomyÂ
Economic growth is boosted when the purchasing power of consumers increases. In simple words, when people have more money to buy goods, this results in greater sales, which translates into greater profits for companies.
As a large chunk of the labor force earns a minimum wage, increasing it would result in higher income for these families. Higher-income means these families will spend more money to purchase goods. The companies that produce these goods will have greater sales.
Thus the economy will get a boost which is much needed after the economic slowdown due to Covid-19. Greater sales will also mean that businesses will have to hire more workers to meet the greater demand for such products. This will result in job creation as well.
This refutes the claims that due to increased minimum wage, the demand for labor will decline. The result will be otherwise. It will make everyone better off.
Reduced Social Security Expenditure
Many governments have social security programs in place. They provide income to the lowest income segment of the population, which does not have any income source or are below the poverty line. These expenditures reduce the ability of the government to spend on other development projects.
As explained above, increasing the minimum wage will elevate people above the poverty line. Additionally, it will result in greater employment opportunities. This will lessen the burden on the government of the social security programs.
The government can use the saved expenditure to carry out development projects and improve the infrastructure. This will further give a boost to the economy as more cash is injected into the economy. It will fuel economic growth.
Reduce InequalitiesÂ
Increasing the minimum wage will bridge many inequalities. The first and most crucial inequality that it will reduce is wealth inequality. For many years, the rich have been becoming rich at the expense of the poor. The increased minimum wage will thus reduce this gap if not end it completely.
Another inequality is that of race and gender. Women are generally less paid, and this forms a greater part of the minimum wage labor. The same is the case with racial minorities in various countries.
Increasing the minimum wage will positively impact these segregated populations than the generally better off. This will undoubtedly help in bridging these gaps.
Conclusion
Although the points presented by opponents of minimum wage carry weight, the pros of increasing it outweigh its cons by far. It will benefit society as a whole, which is the end goal of economic prosperity. This action is needed to be taken now.
