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Economic Effect of Raising the Minimum Wage

Updated on September 17, 2015

Minimum wage is about the minimum rate per hour that a worker should be compensated for labor. It is put it in place by the federal statute, and employers running businesses that affect interstate trade are expected to abide by it. The minimum-wage law in the United States requires for overtime compensation and it has child labor restrictions. It was established because of the increasing public outcry over the growing number of companies that paid very little money to immigrants, women, and young children for their labor. The U.S president Barack Obama is on record for supporting the increment of the federal minimum wage to at least $9.50 per hour. Analysts have speculated that increasing minimum wage could be beneficial to all including the economy of a nation. This paper focuses on analyzing the economic effect of raising the minimum wage on Texas State.

Economic Overview of Texas

According to the estimates of the 2014 census population, it was recorded that the number of residents in Texas increased by more than 451,320 individuals (Texas Wide Open for Business 2). The increase is perceived to be more as compared to any other state in the United States of America. Between the years 2013 and 2014, it is accurate to assume that the population of Texas state increased by more than 26.9 million people (Lebergott 164-190).

On the issue of income, the Bureau of Economic Analysis ranks Texas number 5 for the change percentage in terms of income growth between the years 2013 to 2014. The agency also ranks Texas number 2 for the overall state personal income at just more than $1.2 trillion and no 24 on the national sphere for per capita personal income which stands at $45, 42 in 2014, an upfront growth from $43,552 in 2013 (Vedder and Gallaway 54). This is generally an indication that the economy of Texas is favorable and that the income level grows as well (Texas Wide Open for Business 3). This showcases the benefit of raising the minimum wage for individuals and the state.

Arguments for Increasing the Minimum Wage

Coppola points out that the minimum wage is important since it bestows responsibility on firms to ensure that they pay reasonable amount that can support their workers. If an organization is unable to pay its workers enough money to support them, then it should be considered not a viable business and should be closed down. This might happen because it is dependent on wage subsidies (Coppola p.1). Another argument for increasing minimum wage is that there is little incentive for organizations to increase wages willingly, considering the high rate of unemployment in the country. On the other hand, workers also do not have the incentive to demand higher pay for fear of being terminated from their jobs. According to these people, minimum wages and subsequent increases are, therefore, necessary to prevent wages from drifting down the subsistence level.

Cooper and Hall (2012) argue that a raise in the minimum wage could be of benefit to workers, particularly those who were adversely affected by recession. These authors continue to note that such an increase could also affect the economy positively since the increased spending for minimum wage workers will immediately have a direct impact on the GDP alongside the related growth in employment. In their research, the authors went on to establish that an increase of Minimum wage would cause an estimated increase in GDP by $25 billion. This would subsequently lead to a creation of more than 100000 new job opportunities within a particular period.

Some people have gone on to claim that increasing minimum wage will lead to job loss. Labergott for instance point out that if compensation goes up, so does supply of workers for that job, which subsequently leads to lower demand for workers by employers because the wage has gone up. For instance, if a caretaker job is advertised, paying $80 an hour, thousands of job seekers would want the job, but if it were $2, few or none would want the job. This means that if an employer is forced by the government to pay minimum of $7 an hour, he may decide not to hire a caretaker, but rather assign the tasks to another staff, hence a job would have been lost due to the minimum wage (Lebergott 164-190).

However, as pointed out by Meyerson several studies including those by HIS, a business analysis organization, Paychex, a payroll service firm have noted that arguments on job cut upon an increase of minimum wage to be untrue. This only means that the grounds by which the assumptions of reduced jobs upon an increase of minimum wage are based are weak and do not have strong support. On the other hand, the assumptions on the exact opposite that raising minimum wage leads to increased job opportunities is strongly supported scientifically.

Conclusion

Based on this analysis, there is no doubt that increasing minimum wage has the potential of improving the wages of low skilled employees and those living within or below the poverty level. In addition, the states GDP will rise due to increased spending from such people, thus steering the economy to a higher level. An improved economy will consequently lead to a health state with many people having the ability to work and invest and a favorable business environment for company and individual operators. Job opportunities will therefore increase.


Works Cited

Cooper David., and Hall Douglas, “How raising the federal minimum wage would help working families and give the economy a boost” 2012, Available from Available http://www.epi.org/publication/ib341-raising-federal-minimum-wage/

Coppola, Frances, “We Need a Minimum Wage?” Forbes. 13 Jan. 2014. Web. July 16 2015.

Lebergott, Stanley. Manpower in Economic Growth: The American Record since 1800. New York: 2011, McGraw-Hill. Print.

Meyerson, Harold, “A higher Minimum Wage May Actually Boost Job Creation”, 2015. Available from https://www.washingtonpost.com/opinions/harold-meyerson-a-higher-minimum-wage-may-actually-boost-job-creation/2014/05/21/463bd80e-e112-11e3-9743-bb9b59cde7b9_story.html

Texas Wide Open for Business. Overview of Texas Economy. 2015. Web. July 16 2015.

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    • jackclee lm profile image

      Jack Lee 23 months ago from Yorktown NY

      Minimum wage should be a local issue. The federal government has no business dictating what a minimum wage should be. The reason is very simple. Cost of living varies across the U.S. A minimum wage in one locale will be different than another based on local circumstances. The free market is best to set the proper amount. When the wage is too low, no workers will show up. The wage will automatically adjust to the local supply and demand. It is also a starting wage and not meant to be a living wage. It is to help the teenagers started on a life long career of work ethics and skills. Raising minimum wage will hurt job creation at the low end. It will hurt the very people you are trying to help.

    • Laura in Denver profile image

      Laura Deibel 23 months ago from Aurora

      Interesting article. Thank you.

    • lions44 profile image

      CJ Kelly 23 months ago from Auburn, WA

      I think a raise in the minimum wage would be beneficial if done gradually. You don't want to do what Seattle is doing and move too fast. Even with exceptions for "small" businesses, this will hurt. So many questions: what do you with franchises and also benefit calculations change, increasing the costs for all businesses. That could be devastating.