Pros and Cons of the Minimum Wage

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Does raising the minimum wage hurt the economy?

Let’s look at the pros and cons of the minimum wage:

The U.S. government created the minimum, or living, wage with the good intention of keeping people out of poverty. It is a government-mandated floor on the price of labor, meaning employers and employees cannot enter into a contract with one another for wages below a certain dollar amount per hour.

  • Supporters believe a wage is fundamentally unjust if one cannot live on it: Those who are willing to work deserve a wage high enough to keep them out of poverty. Most people in poverty are working but still cannot afford the basic necessities because of low wages. Not only does this kind of poverty increase homelessness, it reduces the dignity of those who are forced to accept government welfare to make ends meet. Arguments like these led presidents Roosevelt, Clinton, and Obama each to call for raising the minimum wage to the level of a living wage.
  • Opponents of minimum or living wages believe it reduces employment. A simplified example is: Firm X can afford to hire 10 people at $7.25 an hour; its total labor costs are $72.50 per hour. But if Firm X is required to pay $10 an hour, and its labor budget has not changed, it now can only employ seven people.

Additionally, opponents believe the workers most likely to lose their jobs or unable to find jobs with a rise in the minimum wage will be the workers who are poor: the young, the inexperienced, and the unskilled. The owner of Firm X will keep his best, most experienced workers as they return the most value. This creates a vicious cycle for those vulnerable workers, because they cannot offer their labor for a lower price in order to gain the skills and experience necessary to better compete in the labor market.

>> Read “Understanding Poverty in the United States: Surprising Facts About America’s Poor” to learn more about how the U.S. Census Bureau’s defines “poverty.” <<

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