Economic Effects Of Raising The Minimum Wage

The Economic Effects of Raising the Minimum Wage According to the United States Department of Labor, on June 25, 1938, the Fair Labor Standards Act was signed by President Franklin D. Roosevelt, setting the federal minimum wage to twenty-five cents per hour. Since then, the federal minimum wage has increased twenty-eight times, and currently sits at seven dollars and twenty-five cents per hour. Despite these raises, the general public shows dissatisfaction with the current wage, and the discussion about whether or not to raise it has surfaced again. Some even argue for doubling the current rate. Although raising the federal minimum wage may create temporary economic stimulation, the long-term results show another side to the story, such
Although this seems pleasant in theory, this claim does not take into account the principle that “Consumption is not a determinant of economic growth; it is the result of a prior increase in production. Workers cannot be paid what they haven’t first produced” (Dorn, 1). In other words, production and demand have to increase before consumers can purchase a product. This economic theory is similar to the law of conservation of mass, in that consumption can’t happen without a product to consume. Several researchers, including Daniel Aaronson and Eric French of the Chicago Federal Reserve, have calculated that “a $1.75 hike in the hourly federal minimum wage could increase the level of real gross domestic product (GDP) by up to 0.3 percentage points in the near term, but with virtually no effect in the long term”(French, Aaronson 2). Less than a third of a percentage point in gross domestic product increase is not enough to justify raising a federal minimum wage that does not take into account the difference in the cost of living between
In fact, 50% of students stated that the current rate was too low. 30% stated that it was fine, and twenty percent believed they had no opinion. Four options for response were provided for a question asking where students thought the finances for a minimum wage increase would come from. 23.3% of surveyed individuals stated that they believed the resource would come from investors in the form of decreased returns on their investments, 6.7% believed from customers in the form of increased prices, 16.3% believed from workers in the form of labor cuts by employers, and 53.3% stated that they did not know. These statistics raise the question of whether the public, though having an opinion, is informed about the subject. The finances have to come from somewhere, and there are three main sources that make up the majority of a business's revenue. These sources include “a) reduced profits, b) increased prices and/or c) reduced hours or jobs for unskilled workers” (Perry, 2). From an employer’s perspective, it makes little financial sense to reduce investor profits, as that may result in losing investors, and increasing prices may cause a company to lose customers. This only leaves one option, and that is absorbing the cost of the increased wages by cutting the cost of labor. This could mean laying off fairly large sums of employees or reducing the hours of