The economy recovered, the recession ended, but some critics remain convinced that the minimum wage is a drag on the economy, and actually hurts the folks it was intended to help, low-income and low-skilled workers. Opponents of the minimum wage claim that maintaining it, and increasing it, as has been done twice in the past four years is detrimental to the U.S. economy and, coupled with the current recessionary environment, will hamper needed growth and job creation.
In 1978, nearly 90 percent of economists agreed that the minimum wage contributed to higher unemployment. This belief largely persisted until the 1990s, when many economists began to reason that minimum wages and increasing the minimum wage had only negligible
JobsToday, a division among economists remains concerning the minimum wage. Data concerning it’s impact is conflicted and much of a minimum wage hike’s impact on the economy depends upon the health of the economy when it occurs. Also, some economists argue that any potential negative impact of the minimum wage or increases to the minimum wage are minimal and are offset by its benefits.
Opponents of the federal minimum wage say it’s a job killer. According to federal minimum wage detractors, setting a federal minimum wage artificially creates a price floor for worker wages, preventing the free market from setting labor costs. Because employers costs are increased, chances are that employers will maintain their profit margins by either employing fewer workers or by eliminating jobs within their companies. This is especially harmful to low-skilled workers, because reducing the number of entry level jobs available reduces the chances these workers will be able to secure work to support themselves and their families. Economic data suggests that increases to the federal minimum wage do have an impact on job creation and retention, but differ regarding how much of an impact they have on these factors. Apparently, in a booming economy a modest increase in the federal minimum wage will not impact job creation, as employers may feel that their strong business and need to expand will outweigh the cost increase in labor that a hike in the federal minimum wage will cause.
Another key argument against the federal minimum wage is that by increasing labor costs, prices for goods and services are also increased. Because of this inflation, raising the minimum wage actually does little good for the lowest paid employees, because the gains they realize in an increase in the minimum wage are eaten up by higher prices for food, gasoline and services. In fact, an increase in the minimum wage actually hurts the poor because many of them make slightly above minimum wage, and increasing the minimum wage sets them back to the first rung on the economic ladder. Higher prices for goods and services can also impact employment of higher wage employees, because if employers must pay more for materials or services, they will have less money available to hire and retain employees.
Because of the international portability of many low skilled jobs that the information age and free trade agreements creates, an increase in base labor costs can lead to employers choosing to relocate factories or office jobs overseas where labor costs are much cheaper. This can not only lead to a higher employment rate, but also lost tax revenue and other negative impacts as those companies will be paying property and business taxes elsewhere and will also be buying materials, services and other goods overseas.
Increases in the minimum wage are seen as more harmful to small businesses than large, as small businesses often have tighter budgets and less access to loans than larger corporations. Because much of America’s economic activity comes from small businesses, and because most large businesses start out as small businesses, making it difficult for small businesses to get started and to flourish is bad for the economy and workers.
In summary, while economic data remains conflicted, there is some evidence that the federal minimum wage has some impact on job creation and employment, economic growth and inflation. The severity of this impact at points in the economic cycle remain debatable, however.