Stimulating the Economy
The argument can be made that raising the minim wage to $10.10 would stimulate the economy due to more money spent on goods and services. President Obama and additional researchers argue that lower-income workers, or those who depend on minimum wage, spend their earnings more quickly and locally than do higher-income workers. In fact, the Federal Reserve Bank of Chicago noted that every $1.00 increase in the minimum wage would increase the spending of a low-wage worker’s household by $2,800 yearly. This provides the local, small businesses with the customers and demand they need to maintain and expand their own labor forces. As a result, we would see a reduction in the nation’s unemployment rate. More specifically, our nation could be looking at 85,000 new jobs, which is 9,000 more than the job creation between November and December that yielded a .3% reduction in the unemployment rate. These small, yet impactful resultants of an appreciation in minimum wage would also affect the U.S. GDP by $22 billion. This stimulation is three fold. As the minimum wage increases, our blue-collar labor force is injecting our economy with discretionary income expenditures, which then fuels our local shops, and by reaction, our shop owners can begin to hire more laborers.
At the current wage rate, there are nearly 8 million workers who work full-time, yet they continue to live below poverty levels. These hard-working Americans, who rely on government subsidies, are struggling to provide basic necessities for their families. Not only would raising the minimum wage help these workers and their families, but it would also alleviate some of the pressures on the government to support such people. According to a study by the University of Massachusetts’s Arindrajit Dube, an Amherst Economist, the poverty rate would reduce by 1.7%, which would also erase more than half of the increase in poverty caused by the recession. This translates to almost 5 million people being lifted out of poverty. An increase in minimum wage would directly affect the wellbeing of millions of Americans who, at the current wage-floor, struggle day-in-and-day-out to supply the goods, which many of us take for granted.
Lastly, the council of Economic Advisers estimates that, when fully phased in, 28 million workers would see a raise in wages. According to the Fair Minimum Wage Act, the entire wage scale would appreciate due to inflation rates. This suggests that even those who are currently earning more than $7.25 an hour, such as $8.25 or $9.00, would also see their pay rise past the $10.10 mark. Although the nation’s inflation rate has been relatively steady (between 1.5% and 1.7% from 2012 through 2014) it is important that our laborers are able to keep up with the rising costs of goods and services.
Tomorrow in part three, I will examine minimum wage graphically and also talk about the law of diminishing labor.