The Consequences Of Raising Minimum Wage

Improved Essays
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
…show more content…
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

Related Documents

  • Great Essays

    But how will unemployment rate change during the deflation period? Before talking about the unemployment rate, let’s talk about investment first. People know the money will worth less in the future by inflation, due to the Fisher Equation, which is the real interest rate equals to the nominal interest rate minus inflation rate. When inflation raises, the real interest rate falls as a result. Thus people choose either invest in something that will returns more to balance inflation, or they purchase some fixed assets to store their wealth.…

    • 1183 Words
    • 5 Pages
    Great Essays
  • Improved Essays

    If the national debt grows, interest rates and how much the government owes increases, and then the government will spend all their resources and money on paying off the debt. The government could use their resources, time, and money on programs, creating new jobs, and helping businesses, but they have to pay off their debt. Interest payments and high interest rates get in the way of the government expanding the economy. Moreover, the national debt slows down economic growth in the private sector with higher interest rates. Therefore, the private sector will have negative outcomes, and the private sector will borrow less money.…

    • 728 Words
    • 3 Pages
    Improved Essays
  • Improved Essays

    They even make sure that the government will increase or decrease interest taxes, to prevent the economy to borrow money from the banks. In spite of the government is using fiscal policy to cut out income taxes and improve prosperity in the country, it eventually leading the rise of inflation when the government is borrowing too much from the Federal banks and the United States is in the deficit budget. As a result, the people turns to the monetary policy as a way to fix inflation. The Federal Reserve Bank is managing the economy by controlling the interest rates of the markets. The only way to lower inflation is by increasing interest rates to fix the economy.…

    • 1476 Words
    • 6 Pages
    Improved Essays
  • Great Essays

    Monetary and fiscal inflation are not the same thing. • Wage inflation Affects consumers directly. Wage inflation is also referred to as wage push inflation, it occurs when wages are increased and the price of goods rises as a result. This type of inflation is a key part of the wage-price spiral. This downward spiral involves an increase in the price of goods following a wage increase and leading to another wage increase, meant to accommodate the changing price of goods.…

    • 1838 Words
    • 8 Pages
    Great Essays
  • Improved Essays

    First off, raising the minimum wage decreases employment. But, how? The book, The Effects of a Minimum Wage Increase on Employment and Family, states that higher wages lead to an increase of cost to employers of producing goods and services. The cycle goes as follows, wages increase, businesses raise prices and consumers buy less. Within this process is a scale effect.…

    • 1185 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    Another problem with unemployment is that most teens and young adults rely on part time minimum wage jobs to have some extra cash for school and other activities. By increasing the wage for these minimum wage jobs employers are going to be looking for the best most reliable employees since they will be paying them increased wages. Teenagers and young adults may not be the most reliable employees and therefore they could go without jobs. Lastly, and the biggest problem with raising minimum wage is inflation. Inflation is defined on Dictionary.com as “a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency” (Dictionary.com).…

    • 838 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    Money demand and the interest rate are directly correlated so the interest rate goes up also. As previously discussed, the interest rate increases causes business to decrease their investments because it costs more for them to borrow the money to expand their business. This decrease in investment affects output negatively, bringing it back down though not as much because this effect is secondary. The secondary effect for fiscal policy is known as the crowding-out effect, the tendency for increases in government spending to cause reductions in private investment spending. In this case the crowding-out effect was great due to large sensitivity in the interest…

    • 929 Words
    • 4 Pages
    Improved Essays
  • Superior Essays

    The increase in production will therefore mean more hiring is needed, which increases the demand for workers resulting to a decrease in unemployment. In addition in the short run an increase in inflation will reduce unemployment, resulting to a trade-off between inflation and unemployment. In addition Pettinger (2011) says “If an economy experienced inflation, then the Central Bank raises interest rates. Higher interest rates will reduce consumer spending and investment leading to lower aggregate demand. This fall in aggregate demand will lead to lower inflation.…

    • 1191 Words
    • 5 Pages
    Superior Essays
  • Improved Essays

    In expansionary monetary policy the money supply rises in pursuit to decrease unemployment, increase consumer spending, increase private sector borrowing, and to fuel economic growth. In contractionary monetary policy the money supply decreases in order to gain control over inflation. Contractionary monetary policy also runs the risk of slowing down the economic growth, decreasing private sector borrowing, lowering consumer spending, and increasing unemployment. Expansionary monetary policy causes national currency exchange rate to decrease. When the national currency exchange rate is weakened this now causes the balance on capital account to increase.…

    • 1420 Words
    • 6 Pages
    Improved Essays
  • Improved Essays

    Uk Economy Case Study

    • 2875 Words
    • 12 Pages

    The behavior of the UK economy when interest rate is raised? When interest rate is increased it affects the economy in several ways ,in UK interest rates will affect the UK economy both positively and negatively. Most, sectors in the economy will benefit Higher Unemployment. When interest rate is increased the growth rate of UK economy will slow down, this is as a result of the reactionary steps businesses, consumers, even governments react to developments in the economy. Rise in interest rate lead to increase in firms cost capital, because companies will have to borrow money at a higher interest rate.…

    • 2875 Words
    • 12 Pages
    Improved Essays