Impact of Raising Minimum Wage

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One of the most contentious issues in the United States of America is the minimum wage (US). Different states in the United States have different minimum wages. Colorado’s minimum wage is $9.30 per hour, Florida’s is $8.19, and Illinois’ is $8.25 per hour. California has the highest minimum wage rate of $10.50 per hour in the United States, while Pennsylvania, North Carolina, and Wisconsin have the lowest rate of $7.25 per hour. Missouri’s minimum wage is $7.70 per hour, while Hawaii’s is $9.25. Connecticut has a minimum wage of $10.10 per hour while Maryland and Maine have a minimum wage of $8.75 and $9.00 respectively. Michigan and Ohio pay a minimum wage of $8.90 and $8.15 respectively. In 2015, US was ranked at 11th position with a minimum wage of $7.25 per hour. Australian took the 1st position with a rate of $9.54 while Luxembourg came in second with $9.24. Belgium was third with a minimum wage of $8.57, and Ireland took the 4th position with $8.46 per hour. France closed the list of the five countries that paid a higher wage with $8.24 per hour. The wealth gap between the rich and the poor raises concerns in the US. Averagely, the upper wealthy people are 70 times richer than the poor people. The history of the minimum wage was first enacted in 1894 in New Zealand, and the US adopted the minimum wage policy in 1938 where it charged $0.25 per hour. Since then, a lot of changes have occurred. For instance, in 1939, the wage was raised to $0.30, and in 1956 it rose to $1.00. Significant changes also took place in the following years and 1997, the wage increased to $5.15 per hour. In 2007, the payment was charged at $5.85 and in 2008, it was revised to $6.55 per hour. The current minimum wage of $7.25 per hour was enacted in July 2009. Increasing the minimum wage will not only lift the lives of the American people above the poverty line but also strengthen the entire economy.

Impact of Raising Minimum Wage

Minimum wage increase is an essential aspect towards improving the economic activities that augment economic growth. According to Economic Policy Institute, “raising the minimum wage to $10.10 per hour from the current $7.25 per hour will have a positive result since it will inject $22.1 billion net income into the US economy” (Economic Policy Institute 2016). Besides, incorporating the economic policy of minimum wage will create approximately 85,000 employment opportunities for the citizens. The move to aggregate the minimum wage will significantly assist people who earn low-income and thus enhance the overall economic development. Notably, increasing the US minimum wage from $7.25 per hour to $10.10 per hour will see the salaries of approximately 27.8 million employees rise. Undoubtedly, the American working individuals will thus take home an additional $35 billion as income which will be a key instrument to the economy. Liu and Thomas assert that within the initial stage of the raise in the minimum wage, the nation’s economy will realize a growth of around $22 billion (Liu and Thomas 29). Furthermore, in the economy, the long-term effect will see an 85,000 employment formation. Arguably, an increase in the minimum wage will lead to significant job creation. Also, it will positively boost the economy, and as a result, the level of GDP will rise.

Reduction in the poverty levels is one of the primary factors that will result from an increase in the minimum wage. Undoubtedly, this will lead to an increase in the standards of living of the American people. A worker who is paid $7.25 per hour translates to a wage of $15,080 in a year. Kukathas reports that “increasing the minimum wage to $9 would lift 300,000 people out of poverty, and an increase to $10.10 would lift 900,000 people out of poverty” (Kukathas 7). Undisputedly, this minimum wage is petite for an individual to afford to purchase the basic household needs completely. Mărginean and Alina state that 66% of the American individuals that are being paid less than the proposed minimum wage of $10 fails to afford the living expenses (Mărginean and Alina 26).Unquestionably, the American minimum wage subjects an employee to hard challenges in the attempts to meet the minimum standards of living. In fact, it only fuels the poverty rates of the nation.

Raising the nation’s minimum wage will result in massive reductions in the welfare expenditure of the national government. The wage rise will make many people afford to fund their expenses in life and decrease the high dependence on the government. Economic Policy Institute states “Raising the minimum wage to $10.10 will reduce the Supplemental Nutrition Assistance Program spending by 6% and thus save 4.6 billion” (Economic Policy Institute 2016). Similarly, Kukathas states that “the increase would save around $7.6 billion of annual government spending on income-support programs” (Kukathas 4). Thus, the rise in the minimum wage will facilitate reduction of the federal spending. There will be a reduction in the federal budget allocation on the assistance programs and diversion of the recovered revenue to more significant factors that will drive the economic growth of the nation. The American nation incurs a lot of expenditure on programs like nutrition, school, and hospital bills. The increase in the minimum wage will thus curtail the government expenditure on these programs.

The gap of income inequality will be reduced with an increase in the minimum wage. Indeed, the gap that exists between the rich and the poor is wide enough that it raises the alarm to the economic policy makers. Unfortunately, the big gap has a negative impact on the per capita income of the country as it paints false status of the standard of living. Indeed, America faces devastating challenges that arise from income inequalities. If the country increases the minimum wage, it will culminate into decreases in the income inequality. There will be a ripple impact which will increase the income level of a person who gets an income which is considerably over the minimum wage rate. Therefore, this will have a valuable impact on about 3.7 million people receiving a salary that is less than $10.10 per hour. Through this, around 35 million workers will benefit from the increase in wage, decreasing the income inequalities. Kukathas notes that “increase to $10.10 per hour would raise wages for 28 million Americans–about nine million of those due to the ripple effect” (Kukathas 21). Due to the ripple effect, there will be a decrease in the income inequality level.

Conclusion

Surveys from various economic spectrums indicate that an increase in the minimum wage will have a positive impact on the economy. This controversial factor has driven many debates that are directed at addressing the aspect of raising the minimum wage. Notably, increasing the minimum wage will lead to an improvement in the standard of living which will decrease the poverty level and also the income inequality gap. Besides, the government expenditure will also reduce. Also, the government will manage to fund other important programs, leading to the significant economic growth of a country. Even though arguments hold that increasing the minimum wage will cause many people to be laid off from their work, this contention can be opposed as it is evidenced that the rise culminates into beneficial impacts to the economy.

Works Cited

Economic Policy Institute. Minimum wage. Washington, DC. 2016. Accessed on July 15, 2017 from http://www.epi.org/research/minimum-wage/

Kukathas, Uma.The Minimum Wage. Greenhaven Press, 2010.

Liu, Shanshan, and Thomas Hyclak. “Employment Effects Of US Minimum Wage Policy.” ZarządzaniePubliczne, no. 3(33)/2015, 2015, pp. 5-15. UniwersytetEkonomiczny W Krakowie – Krakow University Of Economics, doi:10.15678/zp.2015.33.3.01.

Mărginean, Silvia, and Alina ŞtefaniaChenic. “Effects Of Raising Minimum Wage: Theory, Evidence And Future Challenges.” Procedia Economics And Finance, vol. 6, 2013, pp. 96-102. Elsevier BV, doi:10.1016/s2212-5671(13)00119-6.

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