Can We Afford To Raise Minimum Wage Again?
Posted on September 25th, 2010
Raising minimum wage is a hotly contested topic. The idea of putting a few extra dollars in the savings accounts of hardworking Americans currently earning minimum wage sounds good, but critics claim the resulting economic damage more than offsets the benefits for the people it tries to help, along with everyone else for that matter.
Minimum Wage in the United States
The minimum wage law was permanently adopted by the U.S. in 1938 as part of the Fair Labor Standards Act in an effort to prevent businesses from exploiting impoverished workers. Basically, it prevents someone from running a sweatshop in the U.S., legally anyway.
Currently, the federal minimum wage in the U.S. is set at $7.25 with no official raises expected on the horizon. However, President Barack Obama has stated that he’d like to raise it to $9.50 by 2011 and index it with inflation. This means that as inflation causes prices for consumer goods to rise, minimum wage will rise accordingly.
Jobs that aren’t covered by federal minimum wage laws are subject to that of their respective state, city or local law. However, most states have minimum wage laws that either match or exceed that of the federal mandate.
Whether or not that will help the economy and low-wage earners struggling to get by is debatable. Here are cases for both viewpoints:
Advantages of Raising Minimum Wage
Increasing minimum wage helps families in need earn a decent living to keep up with increasing costs. According to the U.S. Bureau of Labor Statistics, the Consumer Price Index (which measures the cost of consumer goods in the country) has increased 0.9 percent in the past 12 months. The last federal minimum wage hike was in July 2009 from $6.55 to $7.25.
Benefits of increasing minimum wage:
- Helps households living in poverty afford a higher standard of living
- Increases consumer spending by providing employees with more income
- Reduces strain on government spending due to less dependence on social programs
- Narrows the gap (even if only slightly) between the wealthy and the impoverished
- Prevents exploitation of vulnerable workers with no power to negotiate for higher wages
Supporters of raising the floor on wages earned do provide benefits for families living in poverty and could help balance the playing field for a lot of families trying to get by. Yet some disagree because the negatives it creates defeats the purpose of increasing wages in the first place.
Disadvantages of Raising Minimum Wage
Those in opposition of increasing wages for low-level workers point to the fact that economic activity doesn’t necessarily increase, and in some cases, could actually decrease. Not only are some detractors against raising minimum wage, some would even prefer to do away with the entire law altogether.
Drawbacks to raising minimum wage:
- Struggling companies will be forced to reduce their workforce, increasing unemployment and hurting those already living in poverty
- Corporations will be motivated to move jobs oversees to circumvent higher U.S. wages
- Creates a tougher job market for non-skilled and entry-level workers
- Wages don’t necessarily correlate with income because employees may have to work less hours or accept furlough days
- Other programs like the Earned Income Tax Credit are much more effective in fighting poverty
While the intentions of raising minimum wage may be good, detractors believe it’s economically misguided. Of course, when it comes to government policies and how it ties into the nation’s economic health, it’s hard not to factor in which side of the political spectrum you fall under. Do you think having minimum wage in place helps or hurts the economy? Would you like to see wages raised, lowered or abolished altogether? Don’t be shy, we have a comments section for a reason.
Henry Truc is an experienced business writer and personal finance enthusiast. He cut his teeth learning about balance sheets and income statements for publicly traded stocks and hopes to use those same principles to help readers in need with their own personal budgets. His work has appeared on Yahoo! Finance, Nasdaq.com, and many other publications. He has interviewed CEOs and Wall Street analysts, as well as investment fund managers and economists, but what warms his heart the most is explaining the dangers of paying only the minimum balance on credit card debt. It’ll cost you more in the long run! He hopes to spread the word to any and all who will listen. If you have a problem; if no one else can help, and if you can find him… maybe you can ask him a question relating to personal finance. Follow him on Twitter.
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Tags: Minimum Wage, Wage
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