As labor unions and activists in U.S.A continue to advocate for a minimum wage increase from the current one to $15 per hour, the impact of such a move will be positive to some macroeconomic variables and negative to others. Although it will come with its share of negative effects to the economy, increasing the minimum wage will generally bring about a significantly positive impact on the lives of the poor people in America.
Positive Impacts of minimum wage increase
In specific terms, a minimum wage increase would directly improve the income of many poor workers who earn small salaries. It will also increase their purchasing power hence bring about higher consumer spending, if inflation remains constant or does not rise by a percentage beyond that of the wage increase (Neumark and Wascher, 2015). If the minimum wage increase is implemented in the United States of America, there is also the possibility of increasing the income taxes for the federal government. This is because as the salaries of the poor employees increase, their level of tax payment also rises. However, this increase in taxes will not be by a large size because the increase only affects the minimum wage, which is earned by the poor workers in small businesses.
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For the general American economy, increasing the minimum wage will reduce the income inequality between the rich and the poor, although by a small percentage. According to David, Manning and Smith (2016), reduction of the income inequality between the poor and the rich will be a positive effect on the economy of the U.S.A
Negative impacts of an increased minimum wage
However, increasing the minimum wage will cause unemployment in the economy as the many poor Americans will become quite expensive for the small business owners. Small businesses that employ these poor Americans may decide to reduce the workforce hence cause a high level of unemployment in the economy (Neumark and Wascher, 2015). A move to increase the minimum wage will also increase inflation in America as small businesses pass the added cost of labor on to the consumers through price increases on the consumer commodities. To the small businesses, such an increase will directly raise their cost of doing business in America (Neumark and Wascher, 2015). Increasing the minimum wage will mean increased cost of labor for these small businesses, which will lead to a reduction in their profitability if their revenues do not rise proportionately.
Conclusion
Increasing the minimum wage will generally bring about a significantly positive impact on the lives of the poor people in America, despite the fact that it will also come with some negative effects on the economy. Therefore, the minimum wage should be increased as stated by Neumark and Wascher (2015) to improve the lives of people. Sociologists like Karl Marx and Emile Durkheim would support such a minimum wage increase, which is being advocated for in America now.
References
David, H., Manning, A., & Smith, C. L. (2016). The contribution of the minimum wage to US wage inequality over three decades: a reassessment. American Economic Journal: Applied Economics , 8 (1), 58-99.
Neumark, D., & Wascher, W. (2015). The effects of minimum wages on employment. FRBSF Economic Letter , 2015 , 37.
