Impacts of a Rise in Minimum Wages

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Updated: Jan 12, 2020
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Impacts of a Rise in Minimum Wages essay


The minimum wage has been, for a long time, a topic of discussion in almost all countries since it directly affects the lives of the citizens. There are arguments and counterarguments regarding the effects of the continuous rise of the minimum wages concerning the welfare of the people and the dynamics of the economy.

In the U.S., low-income earners continue in the push for the rise of minimum wages. Throughout the years, due to the changes that have been continually occurring, the minimum wage in most countries has not been increasing at a proportional rate to match the dynamics of the cost of living, pushing people to live in poverty. In the U.S., the current minimum wage set by the federal government is $7.50 per hour. The real value, therefore, is 24% less than the value it had in 1968 (Neumark et al., 2014).

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For a person living with about two of his/her children, the figure means that the family lives below the poverty line. Poverty increases the vulnerability of people to negative engagements and suffering. This article will explore the social importance of raising the minimum wage, the economic principles revolving around the same, and the impacts of the raise on the overall well-being of people. Increasing the minimum wage rate does not only work in favour of reducing poverty but improves the welfare of the vulnerable groups in society. The social importance of the minimum wage The minimum wage is the primary source of the worker’s welfare. As part of the in-work benefits, a decent salary is, at the very least, the source of livelihood of workers.

The fact that it is what people work for, a worker’s wage is their source of motivation and energy to work. The current systems of the economy have led to the notion that the economy is a separate entity away from the well-being of people (Lemos, 2009). Since the workforce is part of the things that the households provide to the firms, the well being of the people who provide the labour is also part of the equation. It would be a mistake if the firms had the upper hand over the households whereby the households provide more inputs than what they gain from the firms.

The society needs a balanced equation between what it gives and what it receives. The workers should, therefore, receive a payment that is commensurate with the hard work that they do for the government and firms (Kaufman, 2010). About the quality of life, the workers need to have enough to meet their daily requirements, regardless of their skill. It is from the wages they get that they can contribute to the activities of the society as well as their own needs.

If the minimum wage continuously rises as the dynamics of life demand more, the people who receive the minimum wages feel appreciated and live comfortable lives. An increase in the minimum wage reduces income disparity. It is common to find people who earn a hundredfold the amount that others earn. The number of wages given usually depend on such considerations as experience and level of skill (Kaufman, 2010). The result of the wage disparity between people is a continually widening gap between the poor and the rich. The increase serves as a way of slowing down the rate at which the two groups’ income inequality rises.

Since it would not serve the high-income earners right to reduce their sources of income, the viable way to reduce the income disparity is through increasing the minimum wages. In California, for example, the wages are continuously raised to reach $15 by 2022 since 2016 (Neumark et al., 2014). Raising the minimum wage increases the chances of low-income earners to earn more in the long term future. Apart from just consuming, their marginal propensity to save increases, since the wages provide enough for both consumption and saving. Increasing their chances to pull themselves out of poverty is a way of motivating them. It goes a long way in helping the society to have fewer people who are dependent on help from those who earn better.

Economic principles

Raising the minimum wage is bound to affect some other economic areas. One of the areas that are affected is taxation. As the economic principle states, future consequences count. Upon raising the minimum wages in a society that uses the progressive system of taxation, the tax bracket of the workers also rises. The effect of the rise, therefore, is that the people get taxed even more. A government that can raise a better amount of revenue is also able to provide the people with better services. It is common with the rational governments that when they receive more taxes, they use it to benefit the society in a better way than before.

The impact of the rise in minimum wages is, therefore, indirectly linked to better standards of living courtesy of the government. Taxes help in offering better roads, free education, and other social amenities that a properly functioning government can provide. It is a wrong notion that the raise would lead to only more taxation as a one-sided deal. The taxes, although collected more largely, indirectly benefit the people. Raising the minimum wage affects the demand and supply of goods and services. This falls in line with the economic principle that incentives matter. When people get additional disposable income, they gain the purchasing power they did not have before.

The result is a rise in the demand for goods and services relevant to their new level of income (Lemos, 2008). The demand for better clothes than just the ones considered as ordinary, for example, increases. The demand rise for these products and services means that the people can now afford to live in more comfortable lifestyles than their previous ones. In such a case, their welfare is taken care of in that they can afford more than just the basic needs. They can afford the other higher levels of life in the hierarchy of needs. A rise in minimum wages affects just a small percentage of the workers, hence not a big cost for the firms (Schmitt, 2013).

The principle of weighing the advantages versus the disadvantage of a minimum wage is manifest in considering between the rise in the cost of production and the increased demand for goods and services. Through the increase in demand for goods and services, the firms gain the market for what they produce. The demand counters the notion that the firms incur heavier costs of production than before (Lemos, 2008). There is a more significant benefit for the firm since the number of employees affected by the raise is just a fraction of the total number of workers, depending on the employment system that the firm uses. The amount that the firm gains from the workers’ purchase of the goods and services that it produces is, therefore, much higher than the amount by which the cost of labour increases (Lemos, 2008).

In the past, it has appeared as if the rise in the cost of labour leads to the employers reducing the number of working hours, resulting in low wage earners in the long run. However, the recent researches reveal that the higher wages reduce the rate of labour turnover, which benefits both the workers and the employers. Those with experience remain at the firm, hence reducing the costs of hiring and training process (Schmitt, 2013). Also, the employers still require the factor of labour. Thus, firms are not likely to let go of what they need.

The notion that a rise in minimum wages leads to unemployment is, therefore not entirely significant to consider since the demand for labour still pushes the firms to hire. The social impact of raise in the minimum wages A rise in the minimum wage results in the general rise in the standards of living of workers and their families. Upon receiving a better salary, workers can improve the number and quality of goods and services they can purchase at a particular period. A rise in the general conditions of living means that the family that was previously living in poverty and struggling to pay for their needs is enabled to afford a better life, maybe above the poverty line (Lemos, 2008). As previously stated, at the wage rate of $7.50 in 2018, a family with two children lives at around the poverty line. A gradual rise of the wage rate lifts the family to a more acceptable level of living where they can afford a better lifestyle regarding better housing, balanced diet, and improved general conditions.

The fact that the raise affects a large number of workers at the same time means that poverty levels reduce at the same time. In the U.S., about 35 million people are affected directly while nearly 7 million people are affected indirectly. By 2022, for example, if the goal of increasing the wage to hit $12 is achieved, the poverty in the U.S will be lower by lifting about 4.5 million people (Neumark et al., 2014).

It is of great importance to match the workers’ earnings will have matched the rate of inflation and other economic conditions. A rise in minimum wages raises the social standards. A family that has a generally good income can significantly reduce the indulgence in such negative activities as domestic violence. Lack of money to provide for the family is part of the causes of domestic violence (Neumark et al., 2014). A rise in the amount of money that the breadwinners get means that the reasons for the violence reduce by a significant percentage.

Secondly, the cases of child malnutrition reduce significantly since the family can feed on a better diet. It is important to consider the well-being of the dependents of the workers, children being the main dependents. The rates of child mistreatment also reduce significantly when the breadwinners can provide for them since the latter can stick around home and take care of the children instead of looking for more jobs to feed the family (Schmitt, 2013).

With a better living condition, the chances of teenage pregnancies are generally lower. Female teenagers can attend school instead of helping their parents in the search for basic needs, which would otherwise make them more vulnerable to unethical people in society. When the wages are raised, there is fundamental equality of life among all citizens. The earners of minimum wages also gain better chances of earning a better income in the long run from the investments they make using the remainder after satisfactory consumption. The laws regarding raising the minimum wages cut across all firms, manipulating them to give equal payments for the work done by all people regardless of their sex, ethnicity, or any other different features, creating a sense of equality (Kaufman, 2010).


In conclusion, raising the minimum wages has numerous advantages to the welfare of people and indirectly affects the employers positively. There are generally more advantages in gradually increasing the wage to match the economic conditions of the time, weighing the pros against the disadvantages (Lemos, 2009). There is more room for research in the grey areas such as the result of raising the minimum wages on the number of jobs and hours of working.

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Impacts Of A Rise In Minimum Wages. (2020, Jan 12). Retrieved from