5 Reasons Raising the Minimum Wage Is Bad Public Policy
In the ongoing debate surrounding the merits of raising the minimum wage, proponents often cite the potential benefits of increased income for low-wage workers. However, a closer examination reveals several compelling reasons why raising the minimum wage is ultimately counterproductive and ultimately harmful to the economy.
Job Losses
One of the most significant consequences of raising the minimum wage is the potential for job losses. Businesses, particularly small businesses with limited profit margins, may struggle to absorb the increased labor costs. As a result, they may be forced to lay off employees or reduce hours to stay afloat. A study by the Congressional Budget Office estimates that raising the federal minimum wage to $15 per hour would cost 1.4 million jobs.
Reduced Hours
Even if businesses do not lay off employees in response to a minimum wage increase, they may opt to reduce hours to compensate for the higher labor costs. This could result in workers earning less overall, despite the higher wage rate. A study by the National Bureau of Economic Research found that raising the minimum wage by 10% reduces the average weekly hours worked by low-wage workers by 1.4%.
Inflation
Raising the minimum wage can also lead to inflation. When businesses pass on the increased labor costs to consumers through higher prices, inflation erodes the purchasing power of all workers, including those who do not earn the minimum wage. According to the Federal Reserve Bank of Cleveland, a 10% increase in the minimum wage could lead to a 0.37% increase in the overall price level.
Reduced Productivity
Some argue that raising the minimum wage will increase worker productivity and output. However, empirical evidence suggests that this is not the case. A study by the National Bureau of Economic Research found that raising the minimum wage has no significant effect on worker productivity.
Increased Government Dependence
Finally, raising the minimum wage can lead to an increase in government dependence. As low-wage workers struggle to meet their basic needs despite the higher wage rate, they may turn to government assistance programs such as food stamps and Medicaid. This can increase the burden on taxpayers and ultimately undermine efforts to reduce government spending.
Conclusion
While the intention of raising the minimum wage is to improve the lives of low-wage workers, the evidence suggests that this policy has numerous unintended consequences. Job losses, reduced hours, inflation, reduced productivity, and increased government dependence are just a few of the reasons why raising the minimum wage is ultimately counterproductive and harmful to the economy as a whole.