Consequences Of Raising Minimum Wage

1320 Words 6 Pages
There are plenty of topics in politics. However, there is one topic that is the most vital. Economically, it affects everyone 's lifestyle. Minimum wage is one of the most important subtopics in economics. It is also one of the hardest topics to judge. Whether to raise the minimum wage or not is always questioned. Raising the minimum wage is beneficial for decreasing the gap between the rich and the poor, and increasing the consumers purchasing power. However, there are also consequences when it 's increased. Raising the minimum wage increases unemployment, decreasing the productivity of businesses, and increases inflation, which can possibly lead to hyperinflation.

Minimum wage increases one’s power to afford goods and services. This
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For example, raising the minimum wage can increase unemployment. This is one of the reasons why wages were not increased during the Great Depression. If the minimum wage increased, then the unemployment rate would skyrocket because the businesses already had a hard time paying their workers. Not to mention that the unemployment rate was already high enough at 14.6%. Wages could not be decreased because those who had a job, were having a tough time affording goods and services. Therefore, there was no change in the minimum wage. The minimum wage should never fall below the natural unemployment at four percent. If unemployment rate does drop to below the natural unemployment rate at four percent, then it could be worse than the Great Depression. It could be worse than the Great Depression because everyone is being employed and no new businesses can start. The new businesses have no one to employ, which causes businesses to compete for workers. Minimum wages should never be increased if the unemployment rate is …show more content…
However, if one does not receive a raise, that could be bad because every year wages are increased to adjust for inflation. There have been many times this country has gone through inflation. The most notable one was in 1980. The minimum wage in 1980 was $1.50. The previous decade, it was $0.60. Inflation causes the price of goods to increase while the value of the dollar depreciates. The only way to overcome inflation is through contractionary policies. Firstly, interest rates would have to increase through the Federal Reserve. The Federal Reserve set the limit to the amount of money that 's allowed to be borrowed from the government to banks. So increasing the interest rates would cause banks to increase their rates as well if they want to make money as well. As a result, consumers spend less, causing prices to drop and slowing down the inflation. Secondly, the reserve requirements must increase. When the reserve requirement increases, it allows banks to hold more money to cover up the costs of withdrawals, thus limiting inflation because consumers will borrow less and decrease spending. Lastly, the government can sell bonds to decrease the money supply. The government sells bonds when there is inflation to limit the flow of money in the economy. With bonds, the government repays the person who has bought the bond with interest in the future. Minimum wage contributes to increasing inflation. When the

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