Minimum Wage and Prices

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Updated: Mar 28, 2022
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The price control set by the government which is related to wages for work is called minimum wage. The current federal minimum wage is $7.25 per hour, but some states had passed laws that increased the amount. People should also be aware that minimum wage does not guarantee jobs. In fact, it only guarantees that the employees will earn at least the minimum amount. Raising the minimum wage can also lead to unemployment, higher prices, and disadvantages to people with no job experience.

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Therefore, the government should not raise the minimum wage.

First, raising minimum wage would increase unemployment levels because businesses would find it too expensive to hire more employees. Since more people will be willing to join the work force and less firms will be able to afford to recruit these people, there will be an increase in unemployment. This can be seen by referring to the supply and demand graph provided. Based on the graph, the quantity supplied is greater than the quantity demanded. In other words, the demand of labor will decrease, and the supply of labor will increase as the government raises minimum wage. Since the demand of labor is greater than the supply of labor, it would result in a surplus.

Furthermore, raising minimum wage would also increase the price of everyday purchases. Take the pack of gum sold at the local store, for example. That pack of gum was first made at the factory, where the factory workers earn a higher wage due to the increase of minimum wage. Then, it is transported to the store, where the employees also earn a higher wage. To add on, there would also be an increase in the price of production and gas. When the pack of gum finally arrives at the store, the store must charge more to earn a profit. The same process applies to all goods and services.

On the contrary, some argue that the government should raise the minimum wage since it would help narrow the gap between the rich and poor. However, this event is unlikely to occur considering the following reasons. In the employer’s view, inexperienced people do not justify higher pays, so they will decide not to hire them. Therefore, these low-skilled workers will not only lose his or her paycheck, but also valuable work experience that can help him or her be more successful in the future. In response to this argument, the fact that wages often depend on the employee’s experience should also be discussed. Assuming an individual with no job experience is hired, as the worker gains more skills and experience, their wages usually would have naturally increased without the government’s control. Therefore, raising minimum wage is not necessary since low-skilled workers can gradually earn more wage as they become more experienced.

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Minimum Wage and Prices. (2019, Nov 10). Retrieved from