Does increasing the minimum wage work in the long term?

I was thinking about a minimum wage increase and how it affects the economy long term.  I was wondering if the result would be similar to what happened to the U.S. housing market in the mid 2000’s.

In that case, mortgage issuers were qualifying almost everyone for home loans, and it increased demand for entry level housing.  This had a negative effect on middle class wage earners and others who were looking for houses on the lower end of the price range, as there were many more buyers than there were a few years earlier.

 

So, if the government eventually raises minimum wage (probably not in the next few years), will this have an inadvertent negative effect on middle class wage earners?

 

I was thinking that, since purchasing power of lower income workers is increased, an increase in demand for certain goods would follow.  Those lower income earners that benefited from a wage increase would be able to afford more goods and services, putting them in the same economic level and buying class as earners that were already making that amount.  Costs of things like smaller houses, cars, and dining would then rise due to increase in demand and limited supply.  Eventually, the rise in prices benefits no one—all it does is increase the size of the lower income wage earning group.

 

So, if you bring lower wage jobs into the same wage range as other middle-class jobs, does that mean that the two groups are now in competition with each other?  Does this mean that qualifications and standards for employment in those once low-paying jobs will go up too?  [off-topic, but I think the same thing would happen if you had a “college-for-all” program—jobs that once required a bachelor’s degree would now require a master’s degree, and jobs that once required no degree would now require a bachelor’s degree.]

 

Would a better solution be—rather than raising minimum wage—increasing the amount of opportunity at all income levels?  Can we find ways to establish and promote small businesses that are economically sustainable while paying owners and employees a higher income?  I think that we could use government regulations to promote inefficiency, making room in the market to foster small business growth.  It’s these inefficiencies allow profit to be made, and without enough regulation, big businesses take advantage of them, consolidating a market and getting rich in the process.  If we can focus on keeping market inefficiencies from being exploited by large companies, then we can create room for small businesses.  It would be a shift in policy from “corporate capitalism” to “individual capitalism.”

 

In the long-term, I think increasing minimum wage will have the opposite effect—it will promote maximum efficiency, which results in more overworked people, more automation, more market consolidation, and less jobs.  To a large company, forcing increased wages without adjusting or regulating any other market forces is equal to less incentive to keep workers on their payroll.

Spread the Word...Share on LinkedInShare on FacebookEmail this to someoneTweet about this on TwitterShare on RedditPrint this page

Leave a Reply

Your email address will not be published.