Minimum Wage And How It Will Affect Our Economy Today
The question of minimum wage and its effects on our economy is a very engaging one for policymakers and economists. It is a debate between two politico-economic schools of thoughts and both schools have a very distinct point of view regarding the question of minimum wage and its effects. People on the ideological left believe in increased minimum wages and they hold that it will reduce socio-economic inequalities, enhance the consumer purchasing power (CPP) and improve the economic condition of the lowest strata of the workforce. Whereas, the critics of the concept of minimum wage contend that it would take out the small businesses and would increase the unemployment as well as inflation. The relation between minimum wages and the economic conditions of a society is a very complex one and the indicators are not conclusive. Both sides have data to prove their claims. However, analyzing from a neutral perspective the claims and arguments of proponents of the increased minimum wage seem much more plausible than that of their counterparts.
Effect of minimum wage on the number of workers is an important aspect of this debate. The critics of minimum wage argue that only a small number of workers would get benefit from it as very few adult workers earn minimum wages. But, a large number of workers would be affected because of job loss, and hence, the overall effect would be negative. However, in the views of the proponents of minimum wage, the argument that the increase in the minimum wage would profit only a small number of workers is a fallacy. Minimum wage policy, they argue, will also influence the workers earning wages slightly more than the minimum wages, and consequently, it will influence the workers above them and so on. This will create a “ripple effect” in the economy. A research of Brookings institute estimates that the increase in minimum wages would positively influence almost 35 million people. The research institute believes that “the ripple effect” produced by the minimum wage increase would be large enough in magnitude as to overcome its negatives impacts.
Likewise, rise in the wages would stimulate the economy as well. Although it would hike the prices of the things a little because of expensive labor, the rate of inflation is overly exaggerated by the right wing people. On the other hand, the stimulation in the economy would improve the overall welfare of the society. According to the Economic policy institute, a slight increase in minimum wage limit would provide an economic boost and would create around 80,000 new jobs. In addition, there are many examples of countries with high minimum wages and their economies do not suffer all those ills the critics of minimum wage laws project. Although, countries like Australia have high minimum wages than most of the developed countries their economies are stable, the unemployment is under control, and small businesses are booming.
To conclude, neoclassical economists believe that government should not influence the market through minimum wage laws as it would have negative effects on market as well as on overall socio-economic conditions while progressive economists contend that to ensure the general well-being of the low earning workers, minimum wage is the most important tool. The presentation of the aforementioned analysis depicts that increase in the minimum wage would have positive impact on the economy as it will stimulate the market, improve the living standards of the poor, and multiply the job opportunities.