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Sep 23, 2020 ยท Last update 9 days ago.

What are the Pros and Cons of a minimum wage?

Despite a minimum wage legislation being in place in most countries around the world, the values and drawbacks of such legislation are still debated by economists, politicians and business people. Wage limit legislation actually started with a maximum wage in England in the 14th century, following the decimation of the labour market by the Black Plague a maximum wage was used to control the soaring wages used to attract the few surviving workers. However it wasn't until the 1890s that Australia and New Zealand passed what could be described as modern minimum wage laws. Why do minimum wage laws remain fairly controversial if they are so widespread? What are the pros and cons of a minimum wage? What is the evidence we have for these? For the cons, what are the alternatives?
Stats of Viewpoints
Con: Can increase crime
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Pro: Could reduces dependency on crime/welfare
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Con: Damaging to businesses
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Pro: Stimulates consumption
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Con: Increases unemployment
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Pro: Next to no effect on employment
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Con: Increases poverty
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Pro: Increases the standard of living
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Con: Can increase crime

There is little evidence to support the commonly held belief that raising the minimum wage can reduce crime, and in fact there are important reasons to believe the adverse. Job losses through reduced minimum wage employment as a result of a higher legal minimum wage may directly lead to an increase in property crime for direct economic reasons and increased violent crime from the pressure of job loss. Even the perception of fewer labour market opportunities has been found to increase crime rates, so while it seems somewhat counterintuitive, raising the minimum wage can actually increase minor crime through the negative effect raising the minimum wage has on employment.

nber.org/papers/w25647.pdf

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D H
Nov 26
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Pro: Could reduces dependency on crime/welfare

Raising the minimum wage could make minimum wages seem more worth the effort for individuals dependant on social welfare or for some involved in crime. If a minimum wage jobs seems more lucrative people on social welfare may be able to earn enough alone to support themselves or their families, while others who claim social welfare may push themselves to enter the workforce for this higher wage, this could decrease the cost of social welfare programs. For those dependent on crime to earn money, such a selling illegal drugs, illegal begging, or selling counterfeit goods, a higher minimum wage could encourage people to join the workforce rather than pursue money through illegal means.

theatlantic.com/politics/archive/2016/05/raise-the-minimum-wage-reduce-crime/480912 nlihc.org/resource/raising-minimum-wage-would-reduce-public-assistance-spending

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D H
Nov 26
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Con: Damaging to businesses

High wages force businesses to charge higher prices for their products or services to accommodate the higher wages, this is especially damaging to small businesses as they are more likely to have a lower budget for employment, but this is an overall negative for the economy as hurting small businesses hurts entrepreneurialism. A higher minimum wages may mean even bigger companies have to reduce the quantity of workers or reduce the number of hours worked by individuals. Both of these consequences have a knock on effect for consumers as the quality of products and services produced by minimum-wage workers will ultimately suffer as less employment and less hours worked will be detrimental to businesses standards.

georgiaopportunity.org/why-the-minimum-wage-is-bad-news-for-small-business indeed.com/%E6%B1%82%E4%BA%BA%E5%BA%83%E5%91%8A/c/info/raising-minimum-wage

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Nov 26
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Pro: Stimulates consumption

Raising the minimum wage can stimulate consumption which boosts the economy. With higher minimum wages low-income workers earn more money, and as people who earn a low-income tend to spend their entire pay-check, this massively increases the amount of money circulating in the economy. This increased consumption can also increase job creation and cause employment to grow in line with the economy, in 2007 a minimum wage increase to $5.85 generated an additional $1.7 billion in consumer spending and the subsequent raise to $6.55 in 2008 generated an $3.1 billion [1]. Increasing the minimum wage is often criticised for leading to unemployment, but this sort of job loss also has the benefit of encouraging efficiency and automation of industry, further boosting productivity and stimulating growth. We accept that some jobs are more worthwhile automating but at the same time we need to establishing a higher minimum standard of living while increasing economic efficiency, raising the minimum wage can help with both.

[1] bpr.berkeley.edu/2021/01/30/no-more-lies-the-truth-about-raising-the-minimum-wage edlabor.house.gov/media/blog/raising-the-minimum-wage_good-for-workers-businesses-and-the-economy thebalance.com/consumer-spending-definition-and-determinants-3305917 huffpost.com/entry/increasing-the-minimum-wage-creating-jobs-and-funding_b_58d938ffe4b06c3d3d3e7017

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Nov 22
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Con: Increases unemployment

Raising the minimum wage alone is not effective at alleviating poverty and can actually produce increases in poverty by causing companies to become more thrifty making them more likely to lay off workers, this can be called a disemployment effect. Higher minimum wages are thought to result in higher long-term unemployment, especially for teens, as employers are less and less likely to employ someone without skills or experience, younger people can then find it hard to get into employment to begin developing labour market experience. This can also result in jobs moving to other areas or other countries that allow for lower labour costs as businesses try to reconfigure expenses accordingly.

scpolicycouncil.org/research/taxes/minimum-wage cbo.gov/publication/55681 westernjournal.com/study-raising-the-minimum-wage-reduces-long-term-earnings

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Nov 22
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Pro: Next to no effect on employment

Increases in the minimum wage have been found to have little effect on employment, while minimising inequality and possibly increasing economic growth. A 2019 study conducted by Dallin Overstreet at Arizona State University found that a 1% increase in the minimum wage correlated with a 1.13% increase in per capita income, finding that smaller increases did not distort labour markets and that this led to a slight increase in economic growth. This supports what Card and Krueger found in 'Myth and Measurement: The New Economics of the Minimum Wage', analysing employment trends for low-wage workers from 1990-2006 the authors found that increases in minimum wage had no impact on employment and had the intended effect of increasing real wages in the food service, retail and restaurant sectors.

web.archive.org/web/20130112214949/http://www.irle.berkeley.edu/workingpapers/157-07.pdf economix.blogs.nytimes.com/2010/11/01/along-the-minimum-wage-battle-front/?mtrref=en.wikipedia.org&gwh=06906B0356181D36BFD4F89F227FFAEB&gwt=pay&assetType=REGIWALL dataspace.princeton.edu/handle/88435/dsp017d278t020 onlinelibrary.wiley.com/doi/abs/10.1002/pop4.249

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Nov 22
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DH edited this paragraph
Increases in the minimum wage have been found to have little effect on employment, while minimising inequality and possibly increasing economic growth. A 2019 study conducted by Dallin Overstreet at Arizona State University found that a 1% increase in the minimum wage correlated with a 1.13% increase in per capita income, finding that smaller increases did not distort labour markets and that this led to a slight increase in economic growth. This supports what Card and Krueger found in 'Myth and Measurement: The New Economics of the Minimum Wage', analysing employment trends for low-wage workers from 1990-2006 the authors found that increases in minimum wage had no impact on employment and had the intended effect of increasing real wages in the food service, retail and restaurant sectors.

Con: Increases poverty

While raising the minimum wage aims to lower levels of poverty, in reality raising the minimum wage causes price inflation as businesses try to compensate by raising the prices of the goods being sold making day to day expenses higher for societies most vulnerable. In this way minimum wages raises at there worst can benefit some workers at the expense of the poorest and most vulnerable, causing wages and prices to spiral as governments play catch up between wages and inflation. Minimum wages are thought to be less effective than other methods of reducing poverty, such as earned income tax credits, whilst being most damaging to businesses and the economy in general.

mises.org/library/how-minimum-wage-laws-increase-poverty nber.org/papers/w6127 heritage.org/jobs-and-labor/report/raising-the-minimum-wage-will-not-reduce-poverty

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Nov 21
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Pro: Increases the standard of living

Increasing the minimum wage in a society has been found to reduce poverty amongst the most financially vulnerable, which helps to reduce inequality and also boost morale amongst low paid workers. Numerous studies have found that raising the minimum wage raises the average incomes of families at the bottom of income distribution curves, removing financial stress from such families, while encouraging education resulting in better jobs in the next generation. This increase in the standard of living in the poorest and most vulnerable of a given society will only help to raise the average living standard, making a richer society, with more incentive to seek legitimate employment and less state dependence for income.

aeaweb.org/articles?id=10.1257/app.20170085 epi.org/publication/bp178 nber.org/papers/w16355.pdf emerald.com/insight/content/doi/10.1108/01437729410059305/full/html web.archive.org/web/20160809005911/http://www.epi.org/blog/raising-the-minimum-wage-could-improve-public-health

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Sep 23, 2020
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