The Minimum Wage Is a Sound Economic Policy

Here is why the minimum wage will not boost economic growth: The. minimum wage has a negative effect on the American economy, because: 1. Jobs will be cut. 2. Prices on everyday goods will go up. 3. Price inflation will result. 4. Interest rates will increase. 5. Fewer businesses will start. 6. Savings diminish in value. 7. Less money will be spent. 8. More jobs will be cut. 9. This goes on and on. 1. If the cost of hiring someone increases, then companies will not be able to afford as many employees. [1][2] 2. 3. If the cost of hiring someone increases, then companies will be forced to raise their prices to compensate. In the long run, this cancels all of the benefits of the minimum wage. When goods cost more, the cost of everything goes up. This is called price inflation. Such inflation can weaken the economy. [3] 4. Because banks lend money to make money, when the value of their loans decreases do to the inflation described above, they must make more money to compensate for this. They do this by increasing interest rates on loans. [4] 5. With higher interest rates, it is harder for businesses to start, as they have to make a larger initial risk. Also, with higher interest rates, it is harder for a business to stay afloat. [5] 6. Because interest rates will be less than the rate of inflation (banks have to make money), the stronger inflation is, the quicker the value of a savings account deteriorates. [6] 7. When people have less savings, they spend less. Also, they feel less secure. [7] 8. With less people spending, fewer companies can sustain themselves. Also, with less spending, the economy is weaker. [8] 9. This really does go on. Raising the minimum wage can severely weaken an economy, and that certainly isn't what we need right now. Another measure is to determine overall increases in GDP or an overall effect on the economy. "In this new study, Dr. Joseph J. Sabia (United States Military Academy at West Point) uses data from the Census Bureau and the Bureau of Economic Analysis to measure the Gross Domestic Product (GDP) and employment response associated with an increase in the minimum wage. Sabia shows that increases in the minimum wage can actually have a negative effect on GDP"specifically, GDP generated by lower-skilled industries. Sabia first examines whether increases in State and Federal minimum wages between 1997 and 2007 have decreased low-skilled employment (defined here as the employment-to-population ratio for 16-to-19 year-olds). Controlling for economic performance and other unmeasured state employment trends, Sabia finds that each 10 percent increase in a state"s minimum wage decreased employment for the group by 3.6 percent. And because these employment losses were not accompanied by an increase in school enrollment, they suggest that job loss caused by wage hikes is not offset by long-term productivity gains. After determining that increases in states minimum wages did decrease employment, Sabia looks at data on economic growth to determine whether job loss associated with a higher minimum wage has had a negative impact on GDP; he focuses specifically on GDP generated by those industries affected most by minimum wage increases. This includes low-skilled industries like wholesale trade, manufacturing of durables, warehousing and storage, rental and leasing services, and administrative and waste services. Sabia finds that each 10 percent increase in the minimum wage is associated with a two to four percent decline in state GDP generated by these lower-skilled industries. Broadening the analysis to examine national GDP, Sabia finds that increases in the minimum wage between 1997 and 2007 had a small, insignificant negative effect on the national economy overall. This means mandated wage increases are far from the economic "shot in the arm" advocates claim them to be. "[9] However, most of this is measuring increases in the minimum wage. Not on the elimination of it (although the above arguments are still very relevant). Here is what another study concludes: "The effect of a minimum wage is a classic example of the law of unintended consequences. Minimum wages create unemployment: At above-market prices people want to supply more labor than employers wish to hire. Repealing the minimum wage would have two effects. First, it would create job opportunities, particularly for teenagers, and the chance to acquire experience today that can translate into higher future earnings. Second, it would send a powerful message to employers, employees and investors that they can hire and invest without fear of punishment. "[10] Logic can also conclude: "If the owner makes $10 per hour off my work and pays me $8 per hour, then the owner makes $2 profit. If the minimum wage increases to $11 per hour, the owner loses $1 per hour by keeping me employed and will lay me off. The most productive employees will probably keep their jobs, but there will be far fewer employees to do the same amount of work. Many people say that "owners will pay their workers $2 per hour if there isn"t a minimum wage. " This is a ridiculous statement if logic is applied. You have to ask yourself, would you work for $2 per hour? Probably not. Do you know anyone that wants to work for $2 per hour? Probably not. "[11] Therefore, eliminating the minimum wage would spur economic growth. Through my argument, readers can conclude two things: One, that the minimum wage, harms the economy, and two, that eliminating the minimum wage would help economic growth. Sources: [1]: . http://www.frbsf.org... [2]: . http://www.heritage.org... [3]: . http://www.onlineathens.com... [4]: . http://www.foxnews.com... [5]: . http://www.westportresources.com... [6]: . http://www.bankrate.com... [7]: . http://www.iht.com... [8]: . http://www.coloradoan.com... [9]: . http://epionline.org... [10]: . http://www.forbes.com... [11]: . http://dailyorange.com...