Question

Raising the minimum wage has been a hot topic locally and now nationally in congress. SeaTac raised it a couple of years ago. What are the arguments pro and con for raising the minimum wage? What effect do you think it will have on the economy in Seattle?

Answer 1

Raising of the minimum wage has been the current topic in recent years. Some of the advantages of raising minimum wage rate of the nation are as follows:

a. It helps the families to keep up pace with inflation rate in the economy because it adjusts wage rate in the economy according to the inflation rate in the economy.

b. It increases consumption expenditure of the economy because it puts money in the hands of people who will readily spend it. Thus, it increases overall aggregate demand in the economy and thus helps the economy to grow.

c. This increased demand of the product raises national output of the economy and increases production which increases employment rate of the economy.

d. Government expenditure on other safety net programs is reduced with the riser in the minimum wage of the economy.

Some of the disadvantages of raising minimum wage rate of an economy are as follows:

1. Some of the employers might lay off employees as this increases cost of production for the employer and this leads to increase in the unemployment rate of the nation.

2. Some companies increase the final selling price of the product which reduces consumer surplus and increases cost of living in the nation.

3. It might lead to increase in outsourcing where the corporations might outsource their jobs to countries with lower minimum wage standards.

4. It increases automation as capital is substituted for labor and menial jobs of the corporations are being performed by robots.

In Seattle, various research studies have shown that increase in minimum wage have helped the lowest earning classes or low paying workers up to a point but beyond this point it has reduced the working hours of labor and thus having no impact on wage rate taken home.