By Lainie Petersen Updated March 04, 2019
The idea of a minimum wage remains controversial in the United States, even though it has been required by federal law since the Great Depression. While some critics of minimum wage argue that the law harms workers and interferes with business development, advocates point to several advantages, including the protection of workers, improving the economy and motivating employees to higher standards of performance.
Worker Protection
The federal minimum wage was instituted in 1938, during the Great Depression. Reasons for setting a wage minimum included stabilizing the economy and ensuring that all workers, including those who were not labor union members, were at least able to afford basic living necessities.
Modern-day advocates of the minimum wage make similar arguments: Employees who receive adequate compensation are better able to clothe, house and feed themselves and their families. Minimum wage laws are also perceived as necessary to protect workers from exploitation by unscrupulous employers. In some areas, minimum wages are actually higher than those established by the federal government.
Workforce Motivation
When employees are paid well, they enjoy better mental and physical health. When employees are healthy, their performance improves, they are happier and are motivated to improve their skills. Business owners benefit from having happy, motivated workers on their team. This is why many companies, even in industries in which low wages have historically been the norm, will voluntarily pay more than minimum wage to their workers.
Motivated workers may also be more likely to pursue career advancement in their current workplace, rather than departing the company, as soon as they receive a better offer. This enables employers to train and promote workers from within the company, which is often less risky than hiring someone from outside the organization.
Tip
If you are operating a new business and can't pay much more than minimum wage, you may still be able to offer competitive compensation via benefits. Offering paid time off, quality health insurance, tuition reimbursem*nt, product discounts and other perks may attract talent, even if your hourly pay isn't much more than minimum wage.
Improving the Economy
A significant percentage of every paycheck ends up back in the economy, as employees pay for the necessities as well as the products and services that they want. The more people earn, the more they are inclined to spend not only on the basics such as housing and food, but also on entertainment, travel and consumer goods. Companies prosper when consumers feel confident enough to make purchases. In addition, prosperous businesses typically have to hire more workers. As the number of employed people grows, so does the economy.
Social Stability
The minimum wage can also provide social stability within communities. Workers who are assured of receiving a minimum income are often more likely to remain in their current jobs. This benefits employers who aren't forced to deal with the inconveniences of high turnover. In addition, workers who earn more are less likely to leave their communities in search of better wages elsewhere. This result helps stabilize neighborhoods, benefiting all who live there.
FAQs
It acts as a safeguard against extremely low wages and helps reduce poverty and income inequality within a society. By setting a minimum wage, governments aim to promote decent working conditions and provide a degree of economic security for workers.
What are some arguments about minimum wage? ›
There's a divide between those who argue that increasing the minimum wage would reduce poverty and stimulate consumer spending and those who believe it could lead to higher unemployment and negatively impact small businesses and the economy.
Does minimum wage help the poor? ›
The higher federal minimum wage would also lift some 400,000 workers out of poverty, according to the CBO study. At the same time, the average estimate is that about 700,000 workers would lose their jobs. The median estimate is a reduction of 500,000 workers.
What are the central questions in the minimum wage debate? ›
Questions & Answers
- How does raising the minimum wage benefit the economy? ...
- How do employers benefit from a higher minimum wage? ...
- Will employers leave my state if it raises its minimum wage? ...
- Does raising the minimum wage hurt teenage workers? ...
- Who would benefit from a minimum wage increase?
A higher minimum wage will most benefit families with the least income low- income and lower middle-class families.
What does minimum wage mean? ›
A minimum wage is the lowest wage that a worker may be paid per hour. It's a price floor on hourly wages mandated by federal law. Nonexempt workers can't be offered a job or agree to work for less than this amount.
Is minimum wage good or bad? ›
Some studies find that the minimum wage has significant benefits for workers; others conclude that it is harmful. Many studies have been inconclusive. Even so, there appears to be a growing consensus that when the minimum wage is set at a moderate level, the impact on employment is modestly negative.
Why should the minimum wage be $15? ›
Two-thirds (67.3 percent) of the working poor in America would receive a pay increase if the minimum wage were raised to $15 by 2024. A $15 minimum wage would begin to reverse decades of growing pay inequality between the lowest-paid workers and the middle class.
Which is an argument in favor of a minimum wage? ›
The argument for the minimum wage laws is that it is supposed to provide a price floor that ensures that no one is working for wages that are below some generally accepted(but still arbitrary) subsistance level.
Is minimum wage enough to live on? ›
California's $16-an-hour minimum wage may be much higher than a “poverty wage” by federal standards, but high housing costs still make it difficult for low-wage workers to live and make ends meet in the state, according to a new report by the state's Legislative Analyst's Office.
MYTH ONE: “The minimum wage was never meant to be a living wage. It's primarily for young people starting out.” FALSE. The minimum wage was established to ensure that jobs pay enough to support families. For many years it was set at about half the wage paid to a typical (median) worker.
Why should minimum wage stay the same? ›
Research shows businesses would respond to the increased costs by reducing employment, particularly for low-skilled workers. Some businesses may pass the higher costs on to consumers. Despite the hope of proponents, the minimum wage does little, if anything, to decrease poverty.
What are 3 arguments for raising minimum wage? ›
It could help them to move out of poverty and keep up with inflation. Some economists argue that other pros of raising the minimum wage could include increased consumer spending, reduced government assistance (and increased tax revenue), and stronger employee retention and morale.
What is the biggest problem with minimum wage? ›
Minimum Wage Has Not Kept Up With Inflation
While the minimum wage has been adjusted numerous times since its implementation in 1938, it has failed to keep up with inflation and the rising cost of living. The purchasing power of minimum wage reached its peak in 1968 and steadily declined since.
What would happen if there were no minimum wage? ›
In addition, inequality could rise. Some people would, possibly for a limited time, make low wages. That being said, the current rate of $7.25 is still below the federal poverty level, so it wouldn't change much (ASPE, 2021). Instead, the unemployment effect would transform thousands of lives for the better.
How does raising minimum wage benefit businesses? ›
In recent months, some business owners have expressed support for minimum wage increases in the hopes that higher salaries in their communities will give potential customers more spending money, raise tax revenue that can be used to improve the local community, and increase employee satisfaction by meeting cost-of- ...
What would happen if there was no minimum wage? ›
In addition, inequality could rise. Some people would, possibly for a limited time, make low wages. That being said, the current rate of $7.25 is still below the federal poverty level, so it wouldn't change much (ASPE, 2021). Instead, the unemployment effect would transform thousands of lives for the better.
What is a drawback of a minimum wage in terms of social policy? ›
It assumes people will take differences in pay into account when they choose a career. It places the employer at an economic disadvantage relative to employers that pay the living wage. It is one and a half times the employee's usual hourly rate.
How does raising the minimum wage cause inflation? ›
Wage increases cause inflation because the cost of producing goods and services goes up as companies pay their employees more. Companies must charge more for their goods and services to maintain the same level of profitability to make up for the increase in cost.
