Question

Discuss the pros and cons (3 pros and 3 cons) of raising the Minimum Wage to double digits. You must conclude with which side you are on and defend your choice.

Answer 1

Let's suppose that the minimum wage is raised from $8 to $15. The impact of this increase in wage rate will have several effects on the economy which can be beneficial or harmful for the economy.

Let's look at pros first:

Increase standard of living: an increase in the wage rate will raise the standard of living as it will provide the workers with more money at their disposal.If a person was earning low,he will have to decide on what to spend and it will seriously affect his budget constraint and he may not be able to afford the luxuries.Raising the wage will result in more money which a worker can spend on luxuries and necessities both thus increasing his standard of living.

Low Unemployment: A slight increase in wage rate will motivate the workers who remain in voluntary unemployment to find a job and start working and thus it will increase the employment rate in the economy and more workforce will join the economy thus increasing the production and increase GDP.

Reduce Government Expenses: an increase in wages will reduce government spending on government social welfare programmes to support the poor who rely on various welfare schemes to support themselves because of low income,thus would result in decrease in taxes. The funds can be utilized for other welfare purposes.

Now, let's look at the cons of rasing wage rates:

Fewer Hirings: raising wages may result in company following a tight hiring policies as this will greatly increase the burden on their budget. The companies will hire less and may result in job loss,

Increase in Competition: as wages increase, the companies will hire people who are more skilled to justify paying more wages at the expense of low skill people and this will result in job loss of low skill people. The companies will also invest in aotomation processes and technolgy and will become capital intensive rather than labor intensive.

Increase in Prices: the companies will increase the prices of goods and services produced in order to cover up the cost of production, the burden of which directly passes to the consumers.

Now, after looking at all the above benefits and harmful effects of rasing the wages, we can conclude that increasing the wages is not the solution to increase the benefits it provides to the society. As we can see that it will result in job loss due to automation and increase in technology so the low skill labor will find it difficult to find jobs elsewhere as they don't have skill to compete with the skilled labor.WHere will these workers go for work and will they find other menial jobs which would result in decrease in their standard of living and the government will have to come up with new welfare programmes for these people. Rather than increasing the wages, government should work to come with new employment opportunities which will make people self reliant and put less pressure on demand and decrese the unemployment rate. As more and more people comes under the work environment, GDP increases, per capita income increases and inequality decreases.