4 Reasons Why Countries Should NOT Raise the Minimum Wage

4 Reasons Why Countries Should NOT Raise the Minimum Wage
Photo by Gratisography from Pexels

Though the current federal minimum wage in the United States is $7.25, a network of state and local statutes sets the minimum wage in jurisdictions across the United States. With an increasing number of cities considering higher wages, the push for the minimum wage hike seems to be gaining momentum.

However, opponents of the increase including small-business owners and various Chambers of Commerce say the approved wage increase in cities like Los Angeles could push businesses to move to nearby places where they can pay employees less.

In this article, read on to see 4 reasons why countries should NOT increase the minimum wage.

1. Raising the minimum wage risks inflation and hurts the middle class

If the minimum wage were to increase, employers will be required to pay more money to pay their employees. Therefore, the employer will pass that extra cost on to the consumer. This means price increases across the board for consumer goods, resulting in inflation.

The biggest victims of this brand of inflation? The middle class. According to the Pew Research Center, 3.3 million workers earned the minimum wage, constituting a mere 2.6% of all wage and salary workers in the U.S. This means that the majority of workers do not benefit from the minimum wage increase while they are forced to take on the higher prices due to inflation. This ultimately results in less disposable income for the majority of Americans, hurting growth and the economy.

2. Raising the minimum wage hurts employment

As covered in the previous point, a consequence of the minimum wage hike is an increase in payroll costs for employers. This will result in employers being forced to take on fewer employees, reduce hours, or even lay off existing employees.

According to a study by the Congressional Budget Office, raising the federal minimum wage to $10.10 could result in as many as 1 million workers losing their jobs. Ironically, the minimum wage hike would ultimately hurt those it was intended to help, the low-wage workers, because it would “reduce the employment, average income, and income growth of low-skilled workers over short and medium-run time horizons.”

3. Raising the minimum wage is the wrong way to help low-income families

The cost of living for families and individuals varies widely across the United States (see here). Therefore, a federally mandated minimum wage that does justice to the different local economic situations remains a challenge, if not an impossibility.

Some experts claim that the minimum wage hike is not sufficient for many low-income families to cover their living costs anyways, and the rise in prices as a result of the hike would cancel out any increase in their disposable income. Thus, they argue that it would be better to invest money into education and retraining programs so that low-wage workers can get better and higher paying jobs. The costs of such programs would be far less than those incurred due to the minimum wage increase.

4. Raising the minimum wage doesn’t help the people you think it will

Supporters of the minimum wage increase claim that it will help low-income families and those below the poverty line. However, the reality is far from it because the majority of minimum wage earners live in households with other incomes. According to the Pew Research Center, 50.4% of those making the minimum wage are ages 16 to 24, and 64% were part-time workers.

In other words, a large number of minimum wage earners are teenagers who live with parents, students who juggle work and studies, or retirees who supplement their social security income. Raising the minimum wage doesn’t actually help low-income families as most minimum wage earners already have other incomes to live on, and ultimately burdens them with higher prices.