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Minimum Wage Effects On The Economy

10.02.2009 · Posted in Finance Articles

When the minimum wage is increased in America, it is a time where many rejoice. Everyone thinks of all of the men and women who are working for a small hourly wage. What joy they must be feeling and the pride, the pride that comes with only a job well done for a decent wage. Raising the minimum wage rate of pay seems to benefit all of us. nnHappier employees doing the jobs that we do not care to do, or, as in my case, are a little too old to do, they do and giving them a little more, here. The people will be happier in a relatively, unhappy time in their lives. Helping them to make a little more at the end of the week will benefit all of us, the trickle down or up theory applies here. nnThe counter argument is that one thing that people overlook is that if you raise the minimum wage, companies suddenly will need to make changes. If the minimum wage was $6.25 and it was raised to $8, now companies must make a decision. Originally they determine that it is better to employ 2 people at $6.25 an hour than 1 person at $12.50 now must pay either 2 people $8, or one person anywhere from $12.50 to $16. It may be that now layoffs occur, and instead of employing more people at a lower wage, companies employ less people at a higher wage to get more per dollar. nnThat is not the only issue though. If people make more money overall and there is no change in employment rates, then there is more money to spend, and thus as the worlds largest consumer, prices will soon go up. An increase in money supply without an increase in production will lead to inflation. If the increase in the minimum wage does not result in an increase in production, ultimately it is more harmful to much of the economy.nnUltimately the minimum wage is more of a confidence booster for people that are employed, and may stimulate the economic consumption. However, if the U.S. does not produce more, this will just result in more money and actual value flowing out of the US pocket, and into the nations of producers. Therefore it is important the stimulation of production and financial education be a larger priority.

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