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Raising the Minimum Wage Hurts the Working Class

In the great debate about raising the minimum wage, people seldom discuss how doing so could actually hurt the workers that it's intended to help.

(Photo Credit: Tax Credits/Flickr)

Many thanks to Kimberly Amadeo, the About.com U.S. Economy Guide, for taking the time to answer a few questions about the economy and the minimum wage. This is the first of a three-part series addressing issues regarding wages and the economy.

What are the benefits of having a minimum wage?

A minimum wage spurs economic growth by giving workers more money to spend. This increases demand, further boosting business growth. Workers would have the money to invest in their own education, further increase their productivity over time, and improve the attractiveness of the country's labor pool. A more highly educated workforce increases innovation by starting their own businesses.

Businesses with a minimum wage may find that workers would be less likely to leave to find a higher-paying job. This reduces turnover and expensive retraining costs.

How might raising the minimum wage hurt the working class and middle classes?

Some working class workers might lose their jobs if businesses needed to keep their overall budget the same. Some middle class customers may have to pay more for goods and services if businesses raise prices to cover increased cost. It would depend on how much demand would change for higher prices, how much labor costs factor in the end price, and how important price is to the business. 

For example, labor is a big cost factor of food services. McDonalds, which is known for low priced food, would probably not raise its prices much, and so would try to get by with fewer workers. On the other hand, a high-end restaurant could raise prices because it's known for the quality of its food and service. It couldn't get by with fewer workers.

Based upon your knowledge of employer behavior in response to changes in labor laws over time, how do you think employers will react to a rise in the minimum wage in the short and long term?

Short term, small businesses are hit especially hard, because they may not have the flexibility to lay off workers OR raise prices. It could drive many small businesses to ruin, especially if it comes right now when many are still struggling. Larger businesses have more flexibility to either get by with fewer workers, or raise prices.

In the long run, global corporations will start sending jobs back overseas. (During the recession, they started pulling them back to the U.S. because wages started coming down.)

Tell Us What You Think

Do you think the minimum wage should be raised to $12 per hour? Why or why not? Leave us a comment or join the conversation on Twitter.

 

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