The federal minimum wage in the United States is currently $7.25 an hour. It has been at this level for the past 12 years. Meanwhile, the debate over whether it should be increased or not is raging on with no obvious winners. Those who believe the cons of raising minimum wage exceed the benefits have as long a list of arguments to support their views as those who believe the pros of raising minimum wage outweigh the risks.

To help readers get a clearer perspective on the issue we’ve drawn up a list of both the pros and the cons of increasing the minimum wage. Continue reading to find out more.

Pros Of Raising Minimum Wage

Supporters of a higher minimum wage believe the benefits of raising minimum wage far outweigh the risks. Here are three of their strongest arguments.

It Would Boost Economic Activity.

The point here is that increasing the minimum wage would mean putting more cash in the hands of workers. That, in turn, would lead to an increase in household spending, which would stimulate economic activity. The core of this argument is that more money in the hands of ordinary people would enable them to purchase more products and services. This would benefit businesses and they would respond to the increased demand by creating more jobs.

It Would Lead To A Higher Standard Of Living.

One of the main reasons why the minimum wage should be increased, supporters argue, is to give low-income workers a higher living standard. Someone who earns an hourly minimum wage of $7.50 has a yearly income of only $15,080. That is well below the federal poverty level of $17,420 for a family of two.

Apart from that, inflation has been steadily eating away at what one can buy if you are earning minimum wage. Since 1968, the real purchasing power of the minimum wage has dropped by a whopping 31%. An increase in the minimum wage would help low-income earners access better housing, medical care, food, and similar necessities.

A Higher Minimum Wage Would Lead To Improved Productivity.

If those who earn a minimum wage were able to afford a better lifestyle, they would most likely be prepared to work harder, i.e. productivity would increase. They would also be more content at work, which would reduce the likelihood of no-shows. Plus staff turnover would be reduced, cutting the cost for businesses of training new staff.

Cons Of Raising Minimum Wage

As we have seen above, many experts believe that increasing the minimum wage would boost the economy, improve living standards, and raise productivity. There are, however, others who strongly oppose raising minimum wage.

They believe that, while everything might look good on paper, raising the minimum wage would actually cause major problems, with ripple effects throughout the economy. According to them, this is why raising minimum wage is bad:

Small Businesses Would Be Hit Particularly Hard.

Small business owners already find it difficult to compete against large corporations. Most of them have no choice but to operate on small profit margins. This means they would find it very difficult to absorb the cost of an increase in minimum wages. They might be forced to either lay off workers or pass on the cost increase to the consumer. Major corporations with large amounts of capital will find it much easier to deal with such a cost increase.

There Would Be A Rise In Unemployment.

If the minimum wage were to be raised significantly, it could cause large numbers of already low-income earners to lose their jobs. While this is more likely in the case of people who work for small firms, it can also happen at large corporations. If employers have no option other than to pay their workers more, many of them will reduce their employee numbers in an attempt to keep profit levels untouched.

The reality on the ground is that it would be mostly low-income workers who lose their jobs. While a certain percentage of them will remain employed and enjoy their new higher wages, the rest would lose what for many of them is their only source of income.

There Would Be An Increase In Inflation.

If there should be an increase in the federal minimum wage, many organizations could simply increase their prices to keep profit levels untouched. This would result in an increase in the prices of consumer goods and services. The net effect would be to cancel out the higher purchasing power that workers would get from the pay rise. Inflation would go up, in the process making necessities such as housing, food, and healthcare even more unaffordable for low-income workers.

The Bottom Line

As you will probably realize by now, when it comes to increasing the minimum wage there are many different angles to consider. While for many low-income workers it would mean more money in their bank accounts and with that an improved quality of life, there are also various other economic factors playing a role.

The possibility that a higher minimum wage could increase both unemployment and inflation, together with other negative outcomes, causes major uncertainty among economic conservatives. They believe that the cons of raising minimum wage far outweigh the benefits and argue that the solution, in this case, would be much worse than the problem. Wages, they say, should be determined by the free market and nothing else.

Those who support an increase in minimum wages believe the opposite is true: that any possible negative effects of raising minimum wage are outweighed by the benefits - and that it’s time American legislators do the right thing and improve the living standards of those who work very hard in return for very little.

Whatever your point of view on this issue, there will most likely be major developments on this front over the next few years. The last time federal minimum wages were increased was more than a decade ago, and the movement in support of an increased minimum wage has been gaining significant momentum - particularly since the arrival of a new President in the White House who has this as one of his policy agendas.