Research Paper Assignment

The Impact of Increasing Minimum Wage

Jonathan Musangu

Liberty University

BUSI620: Global Economic Environment

Dr. James Ibe

August 11, 2024

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THE IMPACT OF INCREASING MINIMUM WAGE

The Impact of Increasing Minimum wage

What is minimum wage?

The lowest rate of compensation that an employer can give a nonexempt worker per hour

is known as the minimum wage. All states, however, have minimum wage rules of their own; if

an employee is covered by both federal and state regulations, they will be entitled to the higher

of the two. Massachusetts legislation, for instance, mandates that the minimum wage be at least

fifty cents more than the federal minimum.

Additionally, some states have separate minimum wages for specific work categories,

including tippers. Furthermore, a state's towns and municipalities may raise the minimum wage

in areas with greater cost of living. Australia and New Zealand were the first countries to decree

minimum wage legislation to increase the income of unskilled workers. National minimum

wages are enforced in most modern rich economies as well as many emerging ones.

When Massachusetts established a minimum hourly rate for women and children under

the age of eighteen, it became the first minimum wage law in the history of the United States.

The Fair Labor Standards Act (FLSA) of 1938 set a $0.25 minimum wage set by the federal

government. When accounting for inflation, that pay was worth $5.48 in the fourth quarter of

2023. Until 2024, the federal minimum wage in the United States is $7.25 per hour, unless an

employee is explicitly excluded from the Fair Labor Standards Act (FLSA).

Impact on the employe?

Legislators ought to think about raising the minimum wage since the advantages for

businesses much outweigh the additional labor costs involved.

Pay raises may make it simpler for businesses to retain their staff members since they will lessen

the likelihood that they may hunt for better opportunities elsewhere. Reducing employee
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turnover might boost a business's bottom line. High turnover sometimes results in higher costs

connected with onboarding and training, in addition to non-quantifiable costs like strained

customer relations and diminished team morale. Businesses may utilize the money they save by

minimizing employee grinding down to partially offset growing labor costs.

Lower-income households would benefit disproportionately from increasing minimum

wages. These households frequently allocate a larger percentage of their income to basic

expenses like transportation, food, and housing. Raising the minimum wage might improve the

discretionary income of these households and stimulate the market for goods and services.

Therefore, raising the minimum wage might help the economy.

Impact on the employer?

A lot of employers are worried about how raising the minimum wage would affect their

company. The lower tipped minimum wage would be gradually raised and then eliminated under

the Raise the Wage Act of 2023. Restaurants hardly have the capacity to pay greater wages

without raising prices because of their extremely narrow profit margins.

Small profit margins and rising labor expenses might compel company owners to reduce

the workforce. Raising the minimum wage might increase the income and earnings of many low-

wage workers while also potentially resulting in job losses for other low-wage workers,

according to a neutral review of a previous version of the Raise the Wage Act conducted by the

Congressional Budget Office (CBO).

Employers that are having trouble paying their employees on time may be able to get

some financial assistance from small business loans. In the worst scenario, however, companies

that are unable to keep up with growing personnel expenses could have to close.

Raising the minimum wage may make it less worthwhile for employers to recruit inexperienced
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THE IMPACT OF INCREASING MINIMUM WAGE

workers since it may be more economical to invest in automation or hire more experienced

workers who are paid more. The minimum wage rise would result in an uneven number of

unemployed people who are teenagers, less educated individuals, and lower-skilled workers.

Teenagers who work in starter occupations get experience and foundational abilities like

punctuality and collaboration that help them progress in their careers. Reducing the number of

summer or part-time employment options available to younger Americans may cause major

problems in the labor market.

Impact on the economy?

There are advantages and disadvantages to raising the federal minimum wage for the

economy. The first thing that will be observed will be higher consumer spending. Wealthier

employees tend to spend more, which is advantageous for merchants and companies.

Then, we will start observing an enhanced in worker productivity. A little raise in the minimum

wage can result in reduced absenteeism and employee attrition.

When there is a lot of money going around, we will start observing a lessening of poverty

and income inequality. Research indicates that raising the minimum wage can have a major

positive impact on the yearly income of families at the bottom of the income distribution. The

downside of companies having to spend more on their employees, the expense will increase.

When businesses pay their employees more, they might have to increase the price of their

products and services to stay profitable. Price increases for consumer products and housing may

result from this. And inevitably, they will not be able to have a full staff, and they will try to cut

the losses by having the minimum number of employees that can get the job done. So, it slow or

reduced hiring: When salaries rise, companies could choose to take on fewer staff members,

which might result in fewer positions opening for new hires.

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THE IMPACT OF INCREASING MINIMUM WAGE

Impact on the consumer?

Minimum wage regulations frequently consider several worker classifications. For

instance, various minimum wage rates may apply to workers in particular industries, adults, and

children. Because they are expected to get tips, some workers, such as waiters in restaurants,

may also have a reduced minimum pay.

Over time, inflation can reduce the minimum wage's buying power. Some nations tie the

minimum wage to inflation rates to remedy this. This implies that to maintain a constant actual

value, the minimum wage is periodically modified.

Increases in the minimum wage may have different effects on small enterprises. Some

small enterprises may find it difficult to cover the higher labor expenses, which might result in

staff reductions or fewer hours worked. Others may adjust by raising costs or figuring out ways

to run their businesses more efficiently.

Although many countries have minimum wage regulations, not all of them have been put into

effect. The existence and magnitude of a minimum wage are frequently influenced by the labor

laws, social goals, and economic framework of a nation.

Many legislators believe that increasing the federal minimum wage to $15 per hour is a

clever idea. Although raising the minimum wage is meant to help people escape poverty and

develop better work ethics, there are a number of potential drawbacks, including inflation and

job losses.

Conclusion

Raising the minimum wage is vital, but it should only be done in proportion to the

nation's economic expansion. Most people think it is impractical for someone to make less

money than they put in at work, which makes it challenging to support a family. This kind of
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THE IMPACT OF INCREASING MINIMUM WAGE

thinking is prevalent these days, particularly in places where living standards are in danger and

the relationship between growth and wellbeing appears to be severed. Economists predict that

they will negatively impact employment.

The minimum wage has a net beneficial influence on the economy, apart from the few

negative consequences mentioned above. For the minimum wage to serve its original purpose, it

should take economic development into account rather than just the level of life. Every

consequence should be weighed against determining the appropriate minimum wage to prevent

minimum wages that, once implemented, would have a detrimental effect on the economy.

Finally, raising the minimum wage will lead to increased consumption as it will provide more

money to those with lower incomes who are currently spending their whole salary to make ends

meet. This will bring more money into the economy overall.
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References

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Economic Policy Institute. (n.d.). Raising the minimum wage: good for workers, businesses, and the

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How increasing the federal minimum wage could affect employment and family income | Congressional

Budget Office. (2023, December 18). [Link]

Marticio, D., & Berry-Johnson, J. (2024, June 4). The pros and cons of raising the minimum wage.

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Puranam, D., Kadiyali, V., & Narayan, V. (2021). The impact of increase in minimum wages on Consumer

Perceptions of Service: A Transformer model of online restaurant reviews. Marketing Science,

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What Happens to Worker Productivity after a Minimum Wage Increase? (2023, February 9). Kellogg

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Yu, Q. (2021, September 17). Research: When a higher minimum wage leads to lower compensation.

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