How Do Minimum Wage Hikes Affect The Economy?
The arrival of 2019 has brought a wave of minimum wage hikes at state and local levels in the United States. There’s also a strong push to bring the national minimum wage up to $15 by 2024.
While this might seem fantastic for the economy, financial experts are dubious about how recent hikes and the proposed federal wage increase might impact the national economy.
The projected federal minimum wage increase is more dramatic than any this country has ever seen, making it impossible for economists to draw on studies for conclusions about the effects. However, based on market trends and the fundamental laws of economics, they’re predicting several negative fallouts.
Let’s explore what happens when minimum wages increase.
How do wage increases affect the job market?
Economists predict the proposed federal minimum wage hike, along with the state and local increases that have already passed, will have two negative effects on the job market:
1.) Move-outs to the suburbs
An increase in local and state government’s minimum wages will likely push employers to move across borders for avoiding the higher wages, particularly from central cities to suburbs.
For example, Washington, D.C., has raised its minimum wage to $14 an hour. A Washington-based company’s move to a suburb like Arlington, Virginia, where they can pay their workers almost half the hourly wage, will help them remain profitable.
2.) Businesses cutting corners
Businesses forced to increase worker pay will need to find ways to stay profitable. They will likely attempt to cut corners any way they can. This may translate into letting workers go, replacing humans with robots where possible or even cutting down on their level of service to reduce the need for human resources.
This, in turn, will trigger an increase in unemployment rates and underemployment rates across the country.
How do wage increases affect the consumer?
When all the dust settles, it is the average consumer who will likely bear the brunt of the minimum wage hike.
Most companies hiring minimum-wage employees are small businesses with profit margins that are too thin to absorb a jump in salary costs. These businesses will be forced to pass higher expenses on to consumers.
The consumers most likely to be affected by the hike are the poor and middle class, who tend to frequent businesses that hire minimum-wage workers.
How do wage increases affect federal taxes?
One positive impact of a minimum wage hike is the hope that an increase in wages will reduce the number of workers who are dependent upon government assistance programs, thus reducing the average taxpayer’s burden.
It’s also important to note that, when low-wage workers are pushed over the qualifying threshold for government assistance, they may be coming home with less pay after a wage hike.
