Raising the Minimum Wage – Good or Bad?

Even though it’s been a bit since Obama’s State of the Union Address in 2014 where he proposed an increase of over 40% for the minimum wage, it’s still a hot-button topic.   His push for a living wage at $10.10 has been pushed to a “Fight for $15” that is backed by the Service Employees International Union.

Like most changes, there are people for and against it.  So let’s take a look at what the major opinions are regarding the Pros & Cons of raising the federal minimum wage.

First up – the Pros

• Boost the Economy – The thought process here is that by raising the minimum wage, workers that previously were barely making ends meet will be able to spend more money on goods and services that they previously couldn’t afford.  Which means more money to go around for everyone.
• Create Jobs– If those workers are now spending more, then businesses are going to be busier, and will need to hire more workers as a result.
• Less People on Welfare Programs– Low-income families and individuals have to rely on government-sponsored programs to fill in the gaps that their low wages don’t.  So by increasing their wages, there will be less people relying on these programs.
• Less Employee Turnover – People that get paid enough to live off of are happier and more satisfied with their jobs, and will be more likely to stay with an employer for longer.
• Inflation – Every year, the cost of living increases, but the minimum wage has only been raised 3 times in the past 30 years.  So it’s past time for it to happen.

Next – The Cons

• Layoffs – If an employer has a tight budget, they won’t be able to afford raises across the board for all of their employees.  As a result, they will have to lay off employees to stay within their budget.
• Increased Prices – Another tactic employers may be forced to us is a price increase to attempt to afford to pay their workers.  If this happens, then the goods and services that low-wage workers could afford wouldn’t be much different than they were before the increase.
• Fewer Hirings – If businesses are forced to pay employees more per hour, then they can’t afford to hire as many new employees either.
• More off-shore hirings – Another option is to outsource more jobs out of the country where workers will work for way less than $15 an hour.
• Impact Varies by State – There are already a large number of states that have imposed a minimum wage higher than the federal limit.  So the amount of increase will vary pretty drastically from one state to the next if the federal law is applied.

But will it solve the poverty problem?

No matter what side of the debate you’re on, both sides seem to agree that it won’t make a significant impact on the poverty level.  According to the Congressional Budget Office report on The Effects of a Minimum-Wage Increase on Employment and Family Income, increasing the minimum wage from $7.25 to $10.10 per hour will only reduce the number of people in poverty by 900,000, a relatively few portion of the 16.5 million people that would supposedly benefit from the raise.

The attribute this to the fact that the number of minimum wage workers actually in poverty is relatively small.  In fact, only 7% of people that are in poverty have a person in their family that is employed and working full-time.  So essentially, people aren’t in poverty because they aren’t paid enough, but rather, because they aren’t employed.  Which is why some people suggest that creating more jobs for people that need them is a better solution.