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Why the Middle Class Pays for Increases in the Minimum Wage

Updated on February 18, 2013

Who Pays for Increases in the Minimum Wage?

Progressive politicians believe that they can better distribute financial opportunity by simply mandating increases in the minimum wage, but they fail to realize that our market naturally adjusts itself when these kinds of outside regulations occur. When the government mandates increases in the minimum wage, employers have three primary options. The first option is to pass that added cost to the consumer by raising prices. The second option is to cut costs, often by reducing the number of employees. The final, and least likely option, is to accept a loss of profits. None of these options proves beneficial to America, as a whole.


Consumers Pay for Increases in the Minimum Wage

When the minimum wage is increased, businesses often pass this added cost to the consumer. While all consumers pay more, the burden is largely forced upon the middle class. Poor people benefit from increased income, though it is partially negated by increased consumer costs. The middle class, comprising the majority of the population, sees little to no increase in income but an increase in the cost of consumer goods and services. Wealthy people see this increase too, but only a small percentage of the population is considered wealthy. Even so, wealthy people do not feel the increase in consumer costs as much as the middle class does, as wealthy people typically have a greater disposable income. Consequently, the middle class bears the greatest financial burden when there is an increase in the minimum wage; it pays more of these added costs, and it feels the impact of consumer-cost increases to the greatest degree.



Source

Jobs May Be Lost When the Minimum Wage Is Increased

When the minimum wage is increased, some businesses simply cut costs, often times by reducing the cost of labor. Unless worker productivity increases along with an increase in the minimum wage, it isn't as profitable for employers to continue employing the same number of employees. Consequently, employers try to minimize losses by reducing workforce numbers. Businesses do so by upgrading equipment, cutting production, and/or forcing more production out of fewer employees. The typical result is higher unemployment, which once again, is largely paid for by the middle class in the form of taxes which are then redistributed as unemployment benefits.


Businesses Pass Wage Increases to the Consumer

It is possible, though highly unlikely, that businesses could pay employees more and accept less profit. This unlikely model seems to be the goal of some progressive politicians, as it results in greater pay for poor people with no increase in consumer costs. It is unlikely to occur, as businesses are primarily interested in their bottom line, not a progressive agenda. Even if this were to occur, one would have to recognize that this redistribution of wealth would primarily come from the middle class rather than the wealthiest. Thus, the middle class, once again, largely pays for an increase in the minimum wage.


The Middle Class Pays for Increases in the Minimum Wage

As you can see, raising the minimum wage almost always results in a greater degree of inflation. Raising the minimum wage benefits poor people to a slight degree, negatively affects the financial standing of the middle class the most, and has a minimal positive or negative effect on wealthy people. Thus, one could argue that raising the minimum wage is polarizing, forcing more people in the middle class down into poverty and drawing a deeper line between affluent people and the rest of society.


Comments about the Minimum Wage

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    • John Holden profile image

      John Holden 

      5 years ago

      I was interested to read -

      “In the advanced economies of Europe and the United States, gains won’t come from being very cost competitive,” he said. Enhancing productivity, he added, “is the easiest way to improve things.”

      Which seems to argue that in both our economies a minimum wage would be less harmful than poor productivity.

    • John Holden profile image

      John Holden 

      5 years ago

      I agree that a vibrant economy beats all, but even in a vibrant economy some get left behind. And an economy that relies on people working for less than subsistence wages can hardly be described as vibrant.

    • profile imageAUTHOR

      Education Answer 

      5 years ago from Phoenix, Arizona

      Many noted economists agree that government intervention, through wage manipulation, simply doesn't improve wages and buying power as much as a vibrant, energized economy. In short, less government regulation and more economic growth is better in the long run. Consequently, increases in the minimum wage tend to be a government bandage for a poor economy, one that sometimes, as in the UK, results in positive but limited economic improvements for some people. Governments, in general, would be better of dedicating more time developing a strong economy and less time manipulating the market and wages.

      http://www.nytimes.com/2013/02/14/business/global/...

    • profile imageAUTHOR

      Education Answer 

      5 years ago from Phoenix, Arizona

      In the UK, these things did not happen. That is a matter of record. Numerous economists would agree with your statement, and many of these same economists are quite surprised by this.

      Economies vary, and economists take this into account. Some economies are more advanced than others; some economies rely on greater government intervention than others. What is true of the UK is not necessarily true of America, but it is relevant to some degree. Numerous noted economists argue that improved production capabilities, not increased minimum wages, positively impact people's lives more. Here is a great article that compares numerous economies and clearly states what I am saying:

      Best wishes.

    • John Holden profile image

      John Holden 

      5 years ago

      All these arguments, and more, were used to oppose the introduction of the minimum wage into the UK.

      Not one prediction has come true. No jobs were lost, no inflation occurred, no prices were increased.

      Indeed, the extra money in circulation seemed to have the opposite effect.

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