Many economists have argued increasing the minimum wage will further harm struggling businesses and only serve to increase unemployment. They have stated that as businesses cope with the new expenses, they will be forced to cut costs through other methods as seen in the diagram below.
These economists have followed the textbook model of price vs. quantity, that shows that setting the minimum wage higher will cause a period of unemployment, because demand for labor will be greater than supply of labor. This can be seen in the mainstream model of economics below.
However, recent research has shown that by improving the standard of life for their employees by increasing the minimum wage, the businesses and subsequently the American economy will benefit.
By increasing the minimum wage, households that rely on income from minimum wage workers would be able to meet their basic needs, while having extra money. Research has shown that these families are more likely spend extra money immediately to obtain basic needs that were previously unavailable. As these families spend their extra income, they contribute to an increase in aggregate demand, slowly strengthening the economy. With more demand for products as these families gain the power to spend freely, businesses have the potential to expand, resulting in an increase in jobs. Growth of businesses as a result of minimum wage higher than the federal wage has already been proven, according to the Fiscal Policy Institute, which stated that states with higher minimum wages than the federal wage “had faster small business and retail job growth.”
Additionally, psychological studies have shown the higher pay results in increased productivity from employees, a great benefit for any business.
These recent studies illustrate clearly that increasing the minimum wage has exceptionally positive long-term effects, in comparison to the brief negative effects as businesses adjust.
Citations:
* National Employment Law Project, "Why We Should Raise the Minimum Wage." Last modified January 2011. Accessed December 10, 2012. http://www.raisetheminimumwage.com/pages/why-we-should-raise-the-minimum-wage. * Fiscal Policy Institute, "State Minimum Wages and Employment in Small Businesses." Last modified April 20, 2004. Accessed December 10, 2012. http://www.fiscalpolicy.org/minimumwageandsmallbusiness.pdf. * National Women 's Law Center, "Fair Pay for Women Requires Increasing the Minimum Wage and Tipped Minimum Wage." Last modified November 30, 2012. Accessed December 10, 2012. http://www.nwlc.org/resource/fair-pay-women-requires-increasing-minimum-wage-and-tipped-minimum-wage. * Shemkus, . Salary.com, "Increasing the Minimum Wage: Pros & Cons." Accessed December 10, 2012. http://www.salary.com/increasing-the-minimum-wage-pros-cons/. * Hall, Cooper. Economic Policy Institute, "How raising the federal minimum wage would help working families and give the economy a boost." Last modified August 14, 2012. Accessed December 10, 2012. http://www.epi.org/publication/ib341-raising-federal-minimum-wage/.
Citations: * National Employment Law Project, "Why We Should Raise the Minimum Wage." Last modified January 2011. Accessed December 10, 2012. http://www.raisetheminimumwage.com/pages/why-we-should-raise-the-minimum-wage. * Fiscal Policy Institute, "State Minimum Wages and Employment in Small Businesses." Last modified April 20, 2004. Accessed December 10, 2012. http://www.fiscalpolicy.org/minimumwageandsmallbusiness.pdf. * National Women 's Law Center, "Fair Pay for Women Requires Increasing the Minimum Wage and Tipped Minimum Wage." Last modified November 30, 2012. Accessed December 10, 2012. http://www.nwlc.org/resource/fair-pay-women-requires-increasing-minimum-wage-and-tipped-minimum-wage. * Shemkus, . Salary.com, "Increasing the Minimum Wage: Pros & Cons." Accessed December 10, 2012. http://www.salary.com/increasing-the-minimum-wage-pros-cons/. * Hall, Cooper. Economic Policy Institute, "How raising the federal minimum wage would help working families and give the economy a boost." Last modified August 14, 2012. Accessed December 10, 2012. http://www.epi.org/publication/ib341-raising-federal-minimum-wage/.
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