The United States is dividing into two Americas: one in which the wealthy become wealthier and feed off of capitalism, while in the other middle and lower classes work longer hours with lower pay and struggle to survive. These lower classes’ living conditions could be improved to a certain degree if the minimum wage was raised efficiently. Minimum wage is the minimum amount of money/wage that an employer is required to pay his employees for their work, and it cannot be reduced by an agreement or contract. Minimum wages have been introduced to the economy for the purpose of protecting workers against unrealistic and unfair low pay to ensure a fair share of earnings for the working class and protection against them losing their rights. In the United States, the federal minimum wage is $7.25 per hour and has not increased since July 2009. Increasing minimum wage has a massive effect on the country’s economy and its individuals, and so it is no surprise that experts say that raising minimum wages can improve the life style of those employees who are under a minimum level of income. Raising the minimum wage in the United States can result in the increase of economic activity, the reduction of poverty and government welfare spending, and the decline of income inequality in the country.
As the years passed by, the minimum wage in the United States hasn’t changed, meaning it hasn’t kept up with inflation. As a result, many workers are now below the poverty level, especially those with a family of three or more. A major new paper by Dube discusses the minimum wage statistics and relates them to poverty, and he has found a negative relationship between poverty and minimum wage. His research showed that raising the minimum wage by 10%, for example from $7.25 to $8, would cause a 2.4% reduction in poverty. If this estimation is used for predictions, a minimum wage of $10.10 per hour would reduce the number of people living in poverty by 4.6 million. The income of the 10th percentile will also increase by almost $1,700. This reduce in poverty and increase in income will greatly serve the country by improving the life of its citizens, and it also doesn’t require the government to tax or spend more money. While a higher minimum wage will not close the gap between the low-wage workers and millionaires, it will rather reduce the gap between very low-wage and middle-wage workers, which many advocates believe will happen if minimum wage is increased.
The United States’ extremely low minimum wage of $7.25 is not enough to live comfortably and provide for a family. In 1968, full time minimum wage workers earned close to $20,000 a year when today, they only earn about $15,000. This is a huge difference since $20,000 is, while not enough for luxury, enough for a family just to stay out of poverty. This, however, is not the case for today’s minimum wage workers. These workers whose wages are extremely low will have no choice but to heavily rely on government assistance to survive. This means that the low minimum wage is creating and increasing the demands on public resources. If minimum wage was increased, the net spending on public assistance would greatly decrease. Economists can then conclude and predict that a minimum age of $12, by 2020, would cause a $17 billion per year decrease on public assistance expenses. This is a huge amount of money that could be put to use elsewhere where it would have a greater and more positive impact. These savings could, for example, fund improvements to anti-poverty government tools. An example of this is the Earned Income Tax Credit that could be spent on improving education for low-income families.
A big part of the wage inequality is the fact there is a great difference between how hard people work and how much they earn. The system today unjustly expects people to work harder and longer for less money. While increasing the minimum wage won’t magically abolish all wage gaps and make everyone’s incomes equal, it will reduce the enormous gap. Economic research and statistics showed that CEOs, on average, make 373 times more than the workers in their companies, and this is a huge difference in income. When it comes to economic growth, millionaires gaining more millions doesn’t really affect or increase economic growth. On the other hand, consumer spending plays a huge role in economic growth since a small change, such as people getting paid $10 an hour instead of $7, could accumulate to become thousands of dollars a year spent on the communities.
The Detroit News declared ‘Raising minimum wage hurts low-skill workers.’ This and many other phrases regarding the damage of a higher minimum wage have been repeated every day, and some critics even believe an in increase in minimum wage could create poverty. Their argument is that the cost of production will increase, causing minimum wage employers to reduce the number of workers employed. They believe that, as a result, formal workers lose their jobs and start looking for other informal jobs with lower pay. However, 78 years of economic research and evidence demonstrate that this is not true, but rather the contrary effect happens. In reality, increasing the minimum wage will give the public, specifically the lower classes, more money. This means that there will be more money spent, more businesses will have customers, and then consequently hire more workers. This cycle of how economies work will have more money pumped into it if the minimum wage is increased, completely falsifying the notion that an increase in minimum wage will cause unemployment. An article by The New York Times also claimed that minimum wage will decrease labor turnover since the workers are paid more and will have no reason to leave their job in search for a higher paying one.
Those against increasing the minimum wage have often blamed the past increases of minimum wage for employment decline. This, however, is not true because in reality, industry-specific employment has only declined 8 times. In five of those time, the economy of the United States was already in recession; two of those times, the economy was emerging from recession, and one of those times it was about to head into recession. This serves to prove that the employment downturns that have taken place in America’s past were largely due to the normal cycle of economy and businesses rather than a direct effect of changes in minimum wage.
The Unite States’ low minimum wage of $7.25 is simply not enough for its citizens to live comfortably or even to avoid poverty. This means that it will be much more effective if the minimum wage was raised, causing a reduce in poverty, income inequality, and government spending. A higher minimum wage, undeniably, has more positive outcomes than negative and it is necessary, for the better good of the people, to raise the minimum wage. In the end, those who are still in favor of no increase in minimum wage should ask themselves: “What would benefit our economy and people: a millionaire with a million more dollars, or 2,000 workers with $2,000 more dollars?”