Monday, July 13, 2015

Raising the minimum wage would create jobs and improve the economy

A growth in demand would benefit workers/consumers AND business owners

Raising the minimum wage will grow jobs. No, really, it will.

Wage growth and job creation are inherently tied together. But conservative talking points tell us it’s an inverse relationship -- as wages go up, we're told that business owners are forced to pay employees more, which under conservative logic means costs have to be cut somewhere -- either prices go up or payrolls get cut.

In the real world, however, that just isn’t the case. Take a look at Australia, for example. The minimum wage there is the equivalent of around $16 or $17 US dollars per hour. Their economy must be in ruins, right?



Well, not exactly. Australia hasn’t seen a recession in nearly 20 years. They even avoided most of the fallout from the 2008 economic collapse. And their unemployment rate is comparable to the United States, at around 5 to 6 percent. But it’s consistently been that way over the past five years or so, too.

Back home, we see that states with higher minimum wages do better also. States that have higher rates of pay saw faster job growth than states that kept wages at the lower end of the spectrum.

How can this be? It’s simple economics, really: when people have more to spend, they tend to spend it on goods and services they can afford. Give someone working 40 hours a week a $3 an hour raise, and their take-home income rises by about $120 per week. That money doesn't just disappear -- it goes somewhere.

Yes, some of that will go towards savings, and a bit of it will go towards paying off debts as well. But some of it will go towards buying more goods -- it will be easier to buy that new TV if you’re getting a higher income, for example.

As more goods are bought, more income will go into the hands of companies, who will have incentives to hire more employees since demand is up also. As more consumers want a product, it becomes necessary to create the means to put it in their hands -- and so, more people get hired on the job.

Now, there is a limit to how high a wage should go up. Those who oppose raising the minimum wage often ask why we should stop at $10 or $15 an hour? If it’s so good for the economy, why not do $50 or $100 an hour?

But no one is arguing for a rate hike that is 13 times higher than the current minimum wage. At a time when billionaires and corporate giants are seeing record-setting profits, all workers are asking for is a little bit extra when it comes to these financial gains.

I support a rate hike up to about $10-$12 an hour. After that, the minimum wage should be periodically reviewed every five to ten years, or failing that tied to inflation. It will help American workers in the long-run -- imagine having workers that are able to fend for themselves, with livable incomes!

And when it comes to the economy overall, the effects will be negligible, if not positive. More income for the consumer class means more spending from consumers. That’s a reality that even the most ardent opponents of raising the minimum wage should be happy with.

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