A common political and economic issue that has been prevalent lately is the issue of raising the minimum wage. Many believe that the minimum wage in effect today is not enough to support the workers who are living off this wage. Many also believe that raising the minimum wage would benefit the economic and decrease the recessionary gap as there would be more money pumped into the economy through personal salaries. These viewpoints are actively heard and argued about in the political arena, brining politics hand in hand with the economy and operations of small and large businesses. However, raising the minimum wage would not affect the economy in these beneficial ways often presented. The wages at which companies pay their employee is based on the output each individual can potentially bring. Therefore, when the government interferes with the price of the minimum wage, the business can suffer from lack of funds and be forced to let some employees go. Therefore, the solution to fix our economy and raise personal disposable income is not to raise the minimum wage. By raising the minimum wage, the economy and individuals would be negatively affected as many employees could lose their jobs, it would be harder for small businesses to thrive, and small business owners could take giant pay cuts. 

The basis for the stance of not raising the minimum wage comes from how the business cycle works and how the employers determine the prices they pay their employees. If the government interferes with this, the whole cycle could be thrown off and the business could collapse. According to Forbes, the argument for raising the minimum wage has driven from politics, not reason (Blasingame). The price which employers pay their employees is determined by how much output that extra labor can produce. Prices for products are then calculated using the costs of that labor. Therefore, politics has “no place in what businesses pay for their cost factors, especially labor, often the largest cost factor” (Blasingame). If the government raises the price at which employees have to be paid, the labor cost rises without adding any productivity, therefore the logic of raising the prices paid to employees is lost. Government laws and regulations have also pushed up hiring costs as they have increased the minimum wage, unemployment taxes, paid family leave, paid sick time, and easier unionization rules. These are all adding significant costs to hiring workers (Dunkelberg). With these newly added costs and the added costs of higher wages for employees, the businesses will be paying the employees more than their worth. This will cause the business to lose money and ultimately go out of business. Therefore, what was once a small business will be out of business and there will no longer be any jobs available in the company. This shows that when the government interferes with the price employers must pay their workers, an essential right of the company is lost which interferes with the basic structure of the business. Because of this, government interference within the business’s right to set their own employees’ wages will interfere with the business cycle, ultimately causing a loss of jobs. 

When businesses hire employees, it is a win for the employee, the employer, and the economy. When hired, employees not only gain a wage, but they gain experience, resume builders, contacts, and potential networking. All of these could even be used to potentially gain a higher salary. If the value of the employee exceeds its cost, the employer gains value to their company which can help their overall growth. The economy is also boosted as the new labor hired is added to the total pool of labor productivity (Foundation for Economic Education). Now if the employer cannot hire the employee at a price lesser than the value they bring, it is a lose, lose situation as no job is created, no value is added to the company, and no labor is added to the overall labor pool. This is the effect raising the minimum wage could bring as companies might not be able to hire employees at a cost less than the value they bring to the company. 

While on the topic still of why employees cannot be paid higher than what the business determines, let’s use an example to demonstrate how this policy works. In a video published by the Foundation for Economic Education, they use the example of a teenager mowing someone’s lawn. The teenager might offer to mow a man’s yard for $10. Let’s say at this price the man accepts the offer. Everyone wins. The teenager gets paid and the man gets their lawn cut. Now let’s say the teenager demands $20 for the task. The man still agrees because he believes the value of his lawn being mowed exceeds the value of $20, and the teenager gets paid. Now let’s say the teenager asks for $50, and at this point the man declines the offer because the value of his lawn being mowed does not exceed the value of $50. In this case, no one wins and there is no job created (Found for Economic Education). This would be the effect of the minimum wage increase. Firms only hire employees who’s value exceeds the cost of their wage. If the minimum wage is raised, firms would have to cut employees who’s new wage costs more than the value they bring to the company. Because of this, many employees would be out of work, and be in an even a worse financial state than they were when being paid the minimum wage of today. 

One of the main arguments to raise the minimum wage is because people cannot make a living for themselves or support their families of the minimum wage. Within the working force, only a small fraction have minimum wage jobs (Mathur and Strain). While there are some employees trying to live off of this minimum wage, many of these jobs belong to those who are not dependent of this income such as teenagers living at home with their parents and elderly people trying to stay active. Given the opportunity, these people could live off of the minimum wage. Of course not everyone who works a minimum wage job could, but the concerns about those who couldn’t don’t justify the underlying costs of raising the minimum wage such as a greatly number of unemployed workers and the stop of growth in a business (Foundation for Economic Education).

While there is still is the underlying issue of those who do have support themselves or a family off of the minimum wage, raising the minimum wage would not solve this issue or the issue of poverty. If the minimum wage is raised a lot of these people who are struggling to support themselves will no longer even have a job as small businesses will have to cut their employees in order to keep up with the added cost of minimum wages. According to PBS News, “99.7 percent of all businesses in America are small and not large, wealthy corporations” (De Rugy). Small businesses do not typically have a large profit margin, and rarely have extra cash, therefore, these companies do not have extra money to pay for the higher minimum wages, resulting in employee cuts. Also, the nonpartisan Congressional Budget Office calculated that an increase in the federal minimum wage from its current level to $10.10 an hour would result in a lost of about 500,000 jobs (De Rugy). Because of this, while most people think raising the minimum wage would help with those struggling to make ends meet, it may actually cause them to lose their job altogether.  

Raising the minimum would not only affect those towards the lower-ending spectrum, but it could also affect people such as small business owners. Businesses already have to pay costs on top of the salaries the pay their employees. They have to pay payroll taxes, and many of them pay for or match their employee’s contributions to funds such as retirement and insurance. According to Forbes the number of owners reporting higher worker compensation is at the highest level since 2009 (Dunkelburg). The government has recently placed increasing regulations on employers such as unemployment taxes, paid family leave, paid sick time, easier unionization rules. All of these add significant costs to hiring a worker (Dunkelburg). If it wasn’t for these regulations, hiring might advance at a higher place. These regulations add pay with no increase to the labor provided which raises costs and prices while reducing employment. This extra cost has to come from the business owner’s own salary as most of the time there are no extra funds within the company to pay for this. These small businesses survive by selling a good or service for a price which able are willing to pay. To do this price must exceed the cost. However, if the cost of the labor increases because of government regulations, the company would have to sell their good or service at a higher price, and if the public is not willing to pay the new higher price, they will go out of business. This situation is an overall loss for the economy and for the individuals involved as jobs that were provided no longer exist, there is no business boosting the economy anymore, and the business owner is also unemployed. According to CATO, this also brings up the moral issue of raising the minimum wage as people believe low earning workers should be paid more, causing middle earning workers to have to pay more and earn less (Bandow). Obviously, this is an all-around losing situation as for one party to earn more, other would have to earn less and vice versa. 

Another impact raising the minimum wage would have is a lower work ethic for low earning workers. Minimum wage jobs are seen as entry level jobs which workers can use as resume builders and eventually earn a hire wage. With the raised minimum wage, entry-level workers may already be getting paid as much as their co-workers who have two or three years of experience. Because of this, they may not have the drive to earn a higher salary as they are already getting as much as someone who has been there for years. The employees who have been there for years may also see it is not fair that newly hired workers are getting paid as much they are, causing them to slack off at work also. The main source of an individual’s higher earnings is the accumulation of experience and skills in the labor market, both of which are discouraged by increasing minimum wage (De Rugy). Businesses could adjust every wage within the business to adjust to the new minimum wage, but this would cause a major price increase throughout the business. However, if they don’t adjust for the new minimum wage, moral declines as experienced workers are getting paid the same amount as newly hired workers (Blasingame). Increasing the minimum wage will also discourage people to try to climb the wage ladder as they are already making a decent pay. As the Foundation for Economic Education says, “if you take off the bottom two rungs of the income ladder, many will never climb it. That’s the effect of minimum wage” (Foundation for Economic Education). America is built on small businesses and people starting on the bottom and working their way up to the top of business. If you take out the minimum wage, there is no bottom and no starting place. Because of this, increasing the minimum wage would lead to a lack of drive and lower work ethic, losing an essential part of what made America the stronghold it is today. 

Not only would raising the minimum wage increase unemployment, it would overall be detrimental to the economy. First of all, employment would decrease and then there would be less jobs, fewer businesses, and less labor in the labor force. A study from the Federal Reserve Bank shows that minimum wages increase poverty. This is because contrary to popular belief the relationship between low wage and poverty is extremely weak (De Rugy). Raising the minimum wage could also be detrimental to our economy as it could cause the workers considered living in poverty to lose their jobs and then end up receiving no form of payment. One of the main reasons people are pushing a higher minimum wage is because they think it will benefit the overall economy. However, if studies show that raising the minimum wage would increase unemployment and actually be detrimental to our economy, this theory cannot be used as an advocate to increase minimum wage. 

While there are disagreements about whether or not the minimum wage should be raised, most can come to the conclusion that something needs to be done to fix our economy. However, raising the minimum wage is not the answer. According to an article in Forbes, they way to fix the economy is not the apply legal restrictions on minimum wage, but the rather induce the demand of products so firms are inclined to hire more workers to keep up with the growing demands of their business. This way employers would want to pay more than the minimum wage in order to hire enough workers (Harvey). John Harvey argues that we can do this, “and we have the tool to accomplish this through federal deficit spending” (Harvey). Federal deficit spending will do far more to stimulate employment than by raising the minimum wage. This is also only of the other options to stimulate the economy as there are many other options being pushed as well that would decrease unemployment rather than raising the minimum wage which would increase unemployment. 

Raising the minimum wage is a common political topic in debate today. Many believe that this would stimulate the economy, decrease poverty, and increase personal income. However, the wages businesses pay their employees are based on the value the provide to the economy, so if the minimum wage is raised, employers would have a higher cost for the same value, which does not make business sense. Also, these businesses would suffer as their costs would increase. Small businesses would have to make employment cuts to keep up with the new cost, or their business would close all together. Because of this, there would be even more unemployment if the minimum wage is raised, and there would be fewer businesses and less overall labor in the labor market. These factors would actually not help the economy as many think, but would actually be detrimental to the economy. Also, raising the minimum would decrease the work ethic of those on the lower end of the wage spectrum as they would already be getting paid as much as others who have been working in the company for years. There are also other options to stimulate the economy without cutting employment such as federal deficit spending. Because of these arguments, it can clearly be seen how raising the minimum wage would not benefit the economy or decrease poverty as contrary to popular belief, it would increase unemployment and overall be detrimental to our economy. 