The Pros and Cons of Increasing the Minimum Wage

Whether it’s at the local or federal level, increasing the minimum wage has been a hot-button issue for years. The current federal minimum wage is $7.25 per hour and, while many cities have instituted a minimum wage higher than this figure, approximately 1.5 million people still earn the federal minimum wage or less.

Advocates for increasing the minimum wage argue that this doesn’t amount to a living wage. They claim that it’s nearly impossible to pay bills and afford necessities when earning the federal minimum wage, even when employees are working full-time 40 hour weeks. On the other hand, some people argue that increasing the minimum wage will bring about serious economic problems and negatively impact small business owners.

The argument over an increase in the federal minimum wage is contentious and, at times, complex. Both sides of the minimum wage argument bring up a variety of different points that support their position. Like with most policies, increasing the federal minimum wage will likely result in both positives and negatives—the major challenge is to find a balance and determine whether the positive effects outweigh the negative effects, or vice versa. To help you gain some perspective on this issue, we’ve assembled a list of pros and cons of increasing the minimum wage. Check them out below.

The Pros of Increasing the Minimum Wage

Proponents for increasing the minimum wage lay out a number of different arguments for why it would be a net positive. So what are the pros of increasing the minimum wage? Here are 3 common arguments in support of raising the federal minimum wage:

#1: The Standard of Living Would Improve

One of the primary reasons why advocates want to increase the minimum wage is to improve the lives of low-income workers. An individual who works full-time and earns $7.50 per hour earns an annual income of $15,080, which is slightly above $12,760, the 2020 federal poverty level for a single-person household. However, that salary is below $17,420, which is the federal poverty level for a family of two, making it extremely difficult, if not impossible, to support a family on that income.

Additionally, inflation has outpaced increases in the minimum wage, and as a result the real value of the federal minimum wage has dropped 31% since 1968. A higher minimum wage would allow low-income earners to keep up with rising prices across the country, pay off debt, and access higher-quality food, housing, medical care, and other necessities.

#2: Economic Activity Would Increase

An increased minimum wage would put more money in the pockets of workers. That extra income would increase household spending and generate a burst of economic activity. Thus, people would be able to afford more goods and services, businesses would profit from this increase in spending, and jobs could be generated by this economic growth.

#3: Productivity Would Improve

If workers were able to maintain a comfortable lifestyle on a minimum wage income, it’s likely that they would be more productive, happier at work, and less likely to quit or no-show. Several studies have pointed to the fact that an increase in the minimum wage leads to lower labor turnover rates and reduced levels of absenteeism. This is a benefit both for the worker and the employer, given the fact that high employee turnover rates can disrupt operations, hurt company morale, and drastically increase hiring costs.

The Cons of Increasing the Minimum Wage

While some people believe that raising the minimum wage would improve the economy and reduce income inequality, others are skeptical about these outcomes. They make the case that, although raising the minimum wage sounds good on paper, it would cause a lot of problems in practice and have ripple effects across the economy. With that being said, here are 3 common arguments against raising the federal minimum wage:

#1: Small Businesses Would Primarily Suffer

Small business owners, who often operate on thin profit margins, would likely end up dealing with the consequences of a minimum wage increase. While large corporations with plenty of capital could manage the increase in payroll, many small businesses wouldn’t be able to afford the increased costs, which means they would be forced to lay off workers or shut down entirely.

#2: Unemployment Would Rise

A significant increase in the minimum wage could lead to massive layoffs at companies both large and small. If employers are forced to pay workers more, many will cut the number of people they employ in order to maintain profits. And, more likely than not, the people being laid off would be low-level workers—so while some workers would enjoy the benefits of a higher wage, others would lose their source of income entirely.

#3: Inflation Would Rise

If the federal minimum wage were to increase, a large number of companies would pass the increased payroll costs on to the consumer. They would raise prices on goods and services in order to maintain profit margins, in effect cancelling out the increased purchasing power that an individual would supposedly have due to a higher minimum wage. Not only would this increase inflation, it would also make necessities like food, housing, and healthcare even more unaffordable for those living in poverty.

Wrapping Up

As you can see, there are a lot of different angles to consider when it comes to raising the minimum wage. While it would provide many workers with an increased income and perhaps a better quality of life, there are several important economic factors to consider as well. The possible increase of inflation and unemployment, along with other negative economic effects, makes economic conservatives uneasy—they worry that the solution will only cause more problems and that the free market should dictate wages.

Regardless, we’re sure to see action on this issue some time in the near future. The last federal minimum wage increase occurred over a decade ago and the movement for a higher minimum wage has gained momentum and become stronger in the past few years. We’ll just have to wait and see what the future has in store for minimum wage workers in America.

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About the Author

Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. He is currently a contributing editor for 365 Business Tips. Matt is passionate about marketing and business strategy and enjoys the San Diego life, traveling and music.