20 Raising the Minimum Wage Pros and Cons

Raising the minimum wage can leave many families with a greater disposable income and quality of life, reduce the poverty rate, and stimulate economic growth through increased spending.

However, other economists argue that it can also distort the market in a way that decreases the number of jobs available, could harm working conditions, and often reduces purchasing power of the working class.

In the context of rising inflation, it can have the effect of putting further upward pressure on inflation, causing a wage-price inflationary spiral.

Let’s take a dive into some debate points about raising the minimum wage.

Raising the Minimum Wage Pros and Cons

Pro 1: Higher Salaries for Low-Income Families

The most obvious pro of raising the minimum wage is that workers that were on the old minimum wage as well as those that were on a wage that was low enough to be below the new minimum get an increase in pay.

Working families having more income creates many benefits for both them and the economy as a whole.

The increased financial stability leads to more satisfying lives on an individual level. So many families having more money to spend stimulates the economy in numerous ways which benefit many other parties.

Pro 2: Better Job Satisfaction

One of the most important parts of a person’s job is their pay. Any increase in wages will generally increase job satisfaction on the part of the workers that receive it.

An increase in job satisfaction will improve the workers’ own quality of life, but it also brings many benefits to employers.

Higher job satisfaction in a workplace improves that employer’s retention rate. This saves them a considerable amount of money in recruitment and training.

Workers that are more content in their jobs will also generally be more effective, which means that employers are getting more productivity out of each hour an employee works.

Pro 3: Improved Workforce Participation

Economies struggle when there are job vacancies that go unfilled.

Although this is often a feature of economies that have grown faster than their populations, it can also happen when the manpower is there, but these individuals are not willing to enter or re-enter the workforce.

Low pay is among the most common problem that people cite for not wanting to be part of the labor force.

When the labor shortages are for unskilled or low wage vacancies, an increase in minimum wage can be a very quick and easy way to encourage people to fill these roles.

Pro 4: Lower Poverty Rates

An increase in minimum wage directly benefits workers with the lowest wages, which overlap significantly with those below the poverty line.

Because of this, an increase in minimum wage directly reduces poverty rates, especially when those involved are working families.

The moral pros to reducing poverty are self-evident, but there are also societal benefits. Families coming out of poverty have greater access to healthcare and education, which improves those communities and their economies.

Pro 5: Boosted Economic Growth

Workers having greater access to capital allows them more influence over the economy.

By increasing the minimum wage, more people can have this influence which in turn brings more growth to the economy.

This could be done in any number of ways, including increasing their own productivity, patronizing more local businesses, and creating new jobs.

Pro 6: Higher Consumer Spending

The most direct way in which workers who have more money for themselves improve their economies is by engaging in more consumer spending.

This improves the stability and success of these businesses.

The significance of this is that even when minimum wage workers who have more money to spend are not directly creating jobs by starting businesses, they have an indirect part in creating them by contributing to the favorable conditions on the parts of the businesses that do create these jobs.

Pro 7: Decrease in Government Spending

Government assistance programs are not made exclusively for people who are out of work.

A lot of low income families depend on money that is provided by the government. This can be direct, such as with programs that top up income, or indirect, as with housing schemes that are designed for families in poverty.

By creating conditions in which minimum wage and low income workers can pay for these expenses themselves, public spending on government programs is reduced.

Pro 8: Social Mobility Through Self-Investment

A higher minimum wage gives low income workers more money that they can use to improve their financial situation in the future.

In other words, not only does it lead to an immediate increase in income, but it may lead to much larger increases down the line.

Workers with more disposable income can make this happen by starting their own businesses, combining skills they have already learned with capital they now have access to.

They can also improve their socioeconomic status by using this money to fund their own education and training so that they can take higher paying jobs in the future.

Pro 9: Better Morale

In addition to greater job satisfaction, workers earning more money have higher morale.

Moralized workers are not only more productive, but also more ambitious.

These workers can strive to achieve greater goals, earning promotions with their employers by innovating or performing exceptionally well.

Pro 10: Lower Income Inequality

An increase in minimum wage decreases the size of the gap between the richest and the poorest workers, improving income inequality.

This bears out, for example, in the book The Spirit Level, which demonstrates that greater economic equality leads to more social harmony.

A lower income inequality leads to less unrest, mistrust, and social friction, which in turn leads to healthier and more stable societies and economies.

Con 1: Increase in Prices

If businesses do not want the increase in the wages that they have to pay to their workers to affect their profit margins, the simplest way they can rebalance the situation is to pass these new expenses onto their customers.

This can lead to higher prices for goods and services.

An increase in prices will reduce purchasing power for consumers.

Because this reduction in purchasing power tends to disproportionately affect low income families, a very high increase in prices due to an increase in the minimum wage may even leave them financially worse off than before.

Con 2: Unmanageable Labor Costs

Many businesses operate regularly on the edge of a loss.

This means that they either consistently break even or have profits that are so slim, any small increase in expenses could wipe them out completely.

An increase in the minimum wage could make a lot of businesses unprofitable almost overnight, which leaves them with the option of either closing up entirely or adapting in a way that harms their employees or customers.

Con 3: Limited Working Hours

One way in which employers may compensate for an increase in the minimum wage is to reduce the number of hours that their employees work.

Although this can be seen as a positive, when combined with a decrease in purchasing power, it can leave any affected workers significantly worse off.

A reduction in the average working hours that employers offer may lead workers to look for second jobs, pick up informal gigs, or rely on government assistance to make up the difference. All of these consequences reduce the health of an economy.

Con 4: Fewer Job Roles and Vacancies

Employers who are unable to keep up with rising labor costs may decide to merge roles within their businesses.

This not only means that the existing employees have to do more work or bear greater responsibilities than before, but also that there are fewer jobs available.

This decrease in job roles and vacancies can lead to a significant increase in the unemployment rate if it is left unchecked, which leaves many potential workers without any income at all.

Con 5: High Competition and the Race to the Bottom

If an increase in minimum wage causes there to be fewer jobs available, the labor market becomes more competitive.

The longer this goes on, the more unhealthy the competition becomes.

Unhealthy competition in the job market leads to candidates and workers accepting lower wages, poorer working conditions, fewer benefits, and less job security. These maluses can very quickly overtake any improvements in quality of life that a higher minimum wage brings.

Con 6: More Outsourcing

One simple way for businesses to get around paying a minimum wage that they consider too high is to outsource to other countries.

Outsourcing harms the economy that the jobs are being outsourced from by increasing unemployment, decreasing purchasing power, and harming the quality of life of its people through overall damage to the economy.

Outsourcing also often has negative consequences for the countries where the jobs are being created since those locations are chose due to either a perceived or real lack of worker’s rights and protection from exploitation.

Con 7: Expanded Automation

A less damaging alternative to outsourcing is automation. Businesses that automate their workforce replace their workers with machines rather than overseas workers.

Although automation is not inherently negative and can increase economic efficiency through technological advancement, it does always lead to a short-term increase in unemployment, and any long-term improvements to employment are not guaranteed.

Con 8: Deterioration of Benefits

Employers provide benefits to their workers that are an expense to the company but are not reflected in the wages that are paid directly.

The most common benefits are related to health care and pensions, but they can span any number of fields.

If employers do not want to pass the costs along to their customers but also do not want to change the dynamic of their workforce, they may make up the increase in wages by decreasing equivalent amounts from the benefit packages that they offer their employees.

This leaves workers no better off compared to before the increase in minimum wage.

Con 9: Less Incentive for Advanced Training

Even in an economy that succeeds in increasing its minimum wage without experiencing short-term turmoil, there can be a long-term decrease in the proportion of skilled labor that will be available to it.

If a low stress minimum wage job does not pay that much less than a job that is both more stressful and needs long and expensive training, fewer people will take or train for jobs from the latter category.

This can create an expansive skills shortage that may take an entire generation to correct.

Con 10: Unpredictable Consequences

Increasing the minimum wage, especially in large steps, creates distortions in the market.

The greater these distortions are, the more difficult it is to predict negative consequences.

Unlike the rest of the cons in this list, unpredictable consequences cannot be prepared for, which brings a very dangerous luck element to raising the minimum wage.

Table Summary: Advantages and Disadvantages of Raising the Minimum Wage

Advantages of Raising the Minimum Wage	Disadvantages of Raising the Minimum Wage
1. Higher Salaries for Low-Income Families	1. Increase in Prices
2. Better Job Satisfaction	2. Unmanageable Labor Costs
3. Improved Workforce Participation	3. Limited Working Hours
4. Lower Poverty Rates	4. Fewer Job Roles and Vacancies
5. Boosted Economic Growth	5. High Competition and the Race to the Bottom
6. Higher Consumer Spending	6. More Outsourcing
7. Decrease in Government Spending	7. Expanded Automation
8. Social Mobility Through Self-Investment	8. Deterioration of Benefits
9. Better Morale	9. Less Incentive for Advanced Training
10. Lower Income Inequality	10. Unpredictable Consequences

Conclusion

We have learned today how raising the minimum wage can have both positive and negative effects on an economy by looking at 20 of these in some detail. Of course, this list is simply a list of debate points, and you’ll need to do your own research to add depth to each debate point above!