The U.S. House recently passed a bill raising the minimum wage to $15/hour over a period of six years. While the bill is almost certainly dead in the water in the Senate, it has kick-started discussion around an increased minimum wage – and whether it’s a good idea or not. So, what are the potential problems with a higher minimum wage?
Jobs & Growth
While there are studies out there that indicate higher minimum wages have certain negative effects on jobs, there are also studies that indicate the opposite. Looking more broadly at the economy though, growth is more likely when wealth is distributed to the lower classes instead of to the rich. Even the International Monetary Fund (IMF) and venture capitalists agree that growth and job creation comes not from the rich, but from the Middle Class and Poor.
Since a higher minimum wage effectively lifts up these classes, it’s generally a boon for all of us. And this is pretty easy to see through observation: When those at the bottom have more money, they increase spending on goods and services, which increases money flowing into other industries and allows for more raises and hiring, which leads to yet more people increasing spending, and so on, and so on. It also increases demand – which is a much stronger driver for job creation than things like tax cuts for the rich (which can actually negatively impact economic growth).
It’s a win-win for pretty much everyone involved.
Another concern about an increased minimum wage is that it will simply increase costs. This may be the case in some instances, but it could also be missing the forest for the trees. Of the countries with higher minimum wages than the U.S., 35% also rank higher than the U.S. in Heritage Foundation’s Index of Economic Freedom and 57% rank higher than the U.S. on Cato Institute’s Human Freedom Index.
These indexes rank countries on metrics such as an individual’s purchasing power, their ability to save or grow their money, their ability to start a business, and the ability for companies to grow and thrive. While there are other considerations to keep in mind, the fact that so many higher-minimum-wage countries are ahead of the United States in these indexes indicates that a higher minimum wage is not the death knell that so many people fear.
Productivity & Pay
The main reason people think a higher minimum wage would simply increase costs or lead to job losses is because of the idea that employers would need to raise prices or slash their workforce in order to keep up with the wage increases. But this simply isn’t true. In fact, American companies are getting richer than ever because their workers are more productive than ever. However, workers are not getting the same profit-share they used to. Despite increasing work output, their wages have remained relatively stagnant for decades now.
So where is all this extra money going? Directly into the hands of the rich. All this leads to the conclusion that it would be easy for employers at the U.S.’s largest companies to provide wage increases for their workers without increasing prices or laying off employees – money which would flow into the economy to smaller businesses and allow small business owners to do the same.
There are also mental health aspects of pay to take into consideration. According to recent research, even a small bump in the minimum wage saves lives. When you think about the monetary pressure people face from bills and supporting themselves or others, this makes perfect sense. More money means alleviating this pressure – according to the paper: “A 10 percent increase in the minimum wage reduces non-drug suicides among adults with high school or less by 3.6 percent; a 10 percent increase in the EITC reduces suicides among this group by 5.5 percent. … Our estimates suggest that increasing both the minimum wage and the EITC by 10 percent would likely prevent a combined total of around 1230 suicides each year.”
This has ripple effects throughout our society – beyond saving lives – as stress is contagious. The less stressed people are, the more harmonious and productive our society is. Finally, it’s worth noting that earlier research backs up the idea that money and happiness go hand-in-hand – at least up to a point.
Given that worker productivity and corporate profits are higher than ever, we’re criminally underpaying the “cheapest” jobs. And that ultimately has a ripple effect throughout the economy that leads to everyone getting underpaid for their work. It doesn’t matter if these workers are high school students or have a family or not – keeping up with productivity and profits, those making $8/hour should be making $20/hour and those making $20/hour should be making $50/hour.
We not only know that the rich in this country can afford to pay their workers this much without raising prices because they used to do just that, but there’s a real argument to be made that they are stealing money that belongs to their workers. Regardless, we can handle a higher federal minimum wage. IF such a minimum wage increase only serves to jack up prices or cause job losses – then it’s clear we’ll need to do something else to better redistribute the money the rich are accumulating off the backs of their workers.
Whether this means increasing taxes on the rich to pay for expanded social programs, instituting executive pay caps to recirculate more money back into the hands of workers, or something else isn’t as important as the fact that more money will be getting reinvested in the lower classes – which is a much more effective driver of economic growth and national prosperity than leaving it in the hands of the rich.