Minimum Wage: Pros, Cons & Economic Impacts

Raising minimum wage doesn't necessarily fill the piggy bank for everyone.

The federal government mandated a minimum wage in 1938, according to Oregon State University. The government typically raises minimum wage as inflation increases. While increasing the minimum wage seems to benefit the country and lowering the minimum wage would seemingly have a list of adverse effects, there are pros and cons to both.

Raising Minimum Wage and Losing Jobs

While raising minimum wage means workers who make minimum wage will make more, it also creates less of a demand for minimum-wage jobs. A common consensus is that raising the minimum wage will hasten inflation, since a higher minimum wage forces companies to take on excess costs. However, Matthew B. Kibbe, a graduate student at the University of George Mason, explains that companies generally cut jobs rather than raise prices when more cost is incurred. Since companies will likely cut jobs when the minimum wage is raised, at least initially, many people may be hurt rather than helped by the changed.

Lowering Minimum Wage and Paying the Bills

While companies often cut jobs when the minimum wage increases, there's no benefit to hiring more workers when the minimum wage is lowered, unless the company needs more workers. The amount of jobs that will be available due to the lowering of the minimum wage will likely not outweigh individuals making less money. In addition, there's little reason for companies to lower prices if the minimum wage is reduced. This will result in prices that stay relatively the same, which makes it nearly impossible for someone making a lower wage to pay the bills.

The Case for Raising Minimum Wage

While raising the minimum wage will result in fewer jobs, it increases the income of individuals and families that rely on minimum-wage jobs. This results in a higher standard of living, which can boost the economy, although the loss of jobs may somewhat offset the boost. If inflation does not occur to a great extent, people can better pay for basic needs, such as a home and groceries. In addition, some people will be weaned off government assistance, due to the increased wages.

The Case for Lowering Minimum Wage

If minimum wage is lowered, it allows businesses, especially small businesses, to survive during tough times. It would also not affect the poorer people of the country to a great extent. The majority of people making minimum wage do not come from poor families. When the federal minimum wage was raised to $7.25 an hour in 2007, professors Richard V. Burkhauser and Joseph J. Sabia said that the change would affect only 12.7 percent of people that come from poor families. The remaining minimum wage workers came from higher earning families, such as teenagers working during the summer.