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Minimum Wage Affects On Economy
As you may know, income inequality has become a critical problem that politicians have brought widely into public debate due to the the top 3% now possessing over half of all wealth. Cities have attempted to resolve this issue by implementing a $15 minimum wage, but division exists amongst the public as to whether such increase will prove helpful.
It is for this reason that I wanted to bring to your attention an infographic created by New England College’s Masters in Public Policy Program, which provides visual data that can be used to ignite conversation amongst your audience on whether this increase will hurt or help the economy. For example, this infographic juxtaposes each state’s minimum wage alongside their unemployment rate, allowing for your audience to add correlations of their own to the greater conversation.
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The Basics of the Minimum Wage
The federal minimum wage was instituted in 1938 to protect workers from exploitation and to provide them with a base level of income for their work. Since then, the wage has been increased 22 times, and the current federal wage is now $7.25. Congress normally only raises the minimum wage when the economy is healthy and unemployment is low.
Critics of the current wage argue that it is insufficient to support most families. As of 2015, 23 states and the District of Columbia offer a wage that is higher than that of the federal minimum. At $9.32, Washington state offers the highest minimum wage. Wyoming, Arkansas and Georgia all provide wages that are lower than the federal minimum. Five states—Louisiana, Mississippi, Tennessee, Alabama and South Carolina have no state minimum wage.
All of the states with no minimum wage or a minimum wage that is lower than the federal wage have unemployment rates that are higher than the national average.
What an Increase in the Minimum Wage Would Mean
Some are pressing for a federal minimum wage of $15, an amount that many fear will bring with it unintended financial consequences that will hurt the people it is designed to help. As it stands, the current minimum wage does not provide a living wage for most families or single adults. For example:
A couple in which both people worked full-time for minimum wage would earn $15,400, an amount that is below the living wage amount. A single parent with two children who worked full-time for the current minimum wage would have to work 125 hours per week in order to enjoy a living wage. Larger families would suffer an even larger blow as their wages would continually fail to keep up with the cost of maintaining their needs.
How Employers Might React to a Minimum Wage Increase
One of the most probable reactions to a minimum wage increase is one that critics often overlook. If businesses are forced to increase the amount they pay their employees, some will react by downsizing their staff, letting go of the lowest performing employees.
The impact will be most felt by the employees who need these industries the most. Minimum wage prevails in fast food restaurants, hotels and retail service industries. These unskilled workers depend on these jobs to care for their families. Employers may react to the new regulations by cutting much-needed benefits, reducing training and available work hours.
Some companies may relocate to new locations that offer lower rents. They may even cut wages of higher performing employees who have earned pay increases over time and replace them with less skilled workers who demand a lower starting wage. With jobs in higher demand, employers would have the upper hand, and may demand more work in exchange for the additional income. The most precarious of companies will simply go out of business, unable to meet rising expenses. In short, raising the federal minimum wage would cut benefits and earnings to the families that most depend on these businesses for their livelihood.
A rise in the minimum wage would not only mean adverse consequences for small businesses, but for society as a whole. An increase in the federal minimum wage would cause many companies to raise their prices. Economists theorize that just a 10% increase in the minimum wage would mean a spike in prices of goods and services.
Good News about Raising the Minimum Wage
There are some positive effects expected with a minimum wage increase. Studies have shown that job growth was higher in states that increased their minimum wage in the first quarter of 2014. More than a dozen states have plans to increase their minimum wage between 2015 and 2018, with the District of Columbia planning to raise their minimum wage to $11.50, the highest in the nation.
The End Result of a Minimum Wage Increase
The jury is still out about whether a wage increase will help to raise the standard of living for families across the country. How the new wages will affect families depend on many factors, and there are both positive and negative outcomes that will ultimately determine the future of wage growth in the United States.