The raising of the minimum wage in the United States has been a topic of much discussion during the Obama presidency. The president stated in his 2014 State of the Union Address that he wanted to increase the minimum wage from $7.25 to $10.10 per hour. This is almost a 40 percent increase. Obama and his supporters cite that this increase would tremendously benefit the economy and would not lower the number of jobs available in the country. On the other hand, the opposition to a minimum wage increase claims that raising the minimum wage would be detrimental to the economy, as it would cause 500,000 jobs to drop out of the United States. Let’s take a look at a few pros and cons of increasing the minimum wage.
1. Pro: Improved Living Standards
One of the greatest benefits to an increased minimum wage is that it would let millions of US citizens experience a pay raise that could go towards their living expenses and to cover their basic needs. One report by the Congressional Budget Office that came out in 2013 estimated that about 16.5 million workers are paid minimum wage, all of which would greatly benefit from an increase to $10.10 an hour. In fact, over 900,000 workers would be pushed out of the poverty threshold because of the raise.
2. Pro: Less Spent on Social Programs
Those employees that survive off of a minimum wage salary are often the ones that must lean on the support of government run social programs to support their families and themselves on such a low income. Increasing the minimum wage means that many of these people would be better able to support themselves without relying so heavily on the government’s social programs. This could then translate to the reallocation of funds to support needed areas and even a lowering of taxes.
3. Pro: Boost in Worker Morale
An increase in minimum wage could improve worker morale. One of the hardest tasks that businesses have to deal with is figuring out how to get minimum-wage workers to contribute their all into their business. It is often the case that minimum-wage workers’ motivation to work their hardest is not at its highest because they believe their compensation is not enough to give it their all. On top of this, keeping minimum-wage workers over the long term, as well as maintaining a cohesive team of employees is an extremely tricky job because the amount of pay does not sway talented workers to stay with the job.
4. Pro: Fostering of Consumer Spending
Padding 16.5 million workers’ wallets with extra pay likely will trickle down to businesses and retailers to give a significant boost to the economy. That is not to say that low-wage workers would not save a portion of their extra wages, but, in general, the savings rate of employees in the US is quite low, and so it would likely be the case that we would see a rise in consumption. This would probably benefit large warehouse retailers such as Wal-Mart the most.
5. Con: Prices Increases
Often, what is lost in the talk about increasing the minimum wage is that low-wage workers would not be alone in their salaries being increased. Those long-standing employees, as well as management who have worked hard to gain pay raises, would likely want to see their pay increase to match their tenure and title. These are significant extra costs to businesses that many people fail to think about. In all likelihood, companies would deal with it by simply increasing their prices. If the overall cost of services and goods increases to account for higher employee salaries, then it may ultimately negate the wage increase for low-income employees. Additionally, the wallets of the middle class would also feel the sting.
6. Con: Not As Many Businesses Will Hire
Another way that businesses may deal with the increase in expenses caused by the hike in minimum wage is that they may stop hiring new employees. One study done by the Federal Reserve Bank of Chicago found that just a 10 percent increase in minimum wage would decrease low-skill employment by between 2 to 4 percent. Additionally, there would be a lowering of restaurant employment by between 1 and 3 percent. Companies may also start outsourcing their jobs to other countries whose employees are ready to work for drastically less than $10.10 an hour, which would mean much fewer employment opportunities for US Citizens.
7. Con: Reduced Drive For Career Advancement
On one hand, an increase in pay may improve workers’ morale. However, it could also work against their drive for advancement, which would even further hold back low-wage workers’ opportunity to better their social economic outlook. When employees suddenly receive $10 per hour they may be less motivated to attend college or to find specialized jobs that pay more than their recent 39 percent pay raise increase.
8. Con: The Competition Will Get Fierce
As minimum wage increases, those individuals that are overly qualified will be satisfied with taking a minimum wage position. This will thus push out more inexperienced and younger workers, which will take away their opportunity to gain knowledge and experience to put on their resume and thus make it much harder for them to enter into the workforce successfully.