Raising Minimum Wage Increases Growth
I always believed, as do most Democrats, that the minimum wage should be increased and tied to the poverty level because of pure fairness. If we raised the minimum wage to about $8 an hour, it would reinforce the social contract that says, If you have a job you can support yourself. Ravi Batra, however, has demonstrated that increasing the minimum wage would increase economic growth, boost employment and be economically beneficial to all Americans.
Republicans are dead set against increasing the minimum wage. Big Republican Alan Greenspan told the House Banking and Financial Institutions Committee in 1999:
"My main concern is ... the issue of individuals who become unemployed because of the minimum wage."
Republicans argue that small companies would have their expenses increased to the point where it would kill their profits, which would force them out of business. When this happened more employees would be out of work. Batra's argument is the reverse: increasing the minimum wage would not change the profit picture of companies involved, but would boost overall economic activity that would lead to more employment.
The logic is straightforward. It starts with the following simple equation that defines the simple case of economic balance:
SUPPLY = DEMAND
When the economy is in balance, suppliers produce enough to satisfy the demand of all consumers. There are no goods unsold. There are no unsatisfied buyers. When productivity increases, that is, we can build more products with the same workers, the supply rises. If we increase wages a similar amount, consumers will be able to buy more to keep the system balanced.
Of course, nothing stays in balance long. Inflation is always with us to some degree. When inflation rises, workers' wages don't buy as much as they used to. We say that real wages have decreased. With the decrease of real wages, demand decreases. This means that some products are not sold, a situation that may lead to lower profits and retrenchment through worker layoffs. This is negative growth. It's no good for business and it's no good for labor.
It's especially bad for workers at the lower end. They had been struggling to make ends meet before their real wages declined. Now they are worse off. What would happen if we increased the minimum wage they received? Their real wages would increase. And since they spend every penny they get, this would increase aggregate demand. Companies on the supply side would sell more, make more profit and perhaps hire more workers. This is positive growth. It's good for business and it's good for labor.
How would raising the minimum wage affect the fortunes of companies hiring minimum-wage workers? Not much; maybe they would need to charge their customers more. Their expenses would rise. But so would the expenses of their competitors.
The improvement in the economy is better than what could be achieved by raising the minimum wage alone. Many low-end workers who make a little more than the minimum wage would probably soon get increases too. When they go spending, it would increase the aggregate demand further, thus enriching companies more and raising the possibility for more employment.
Let's increase the minimum wage to about $8 per hour and let's tie it to the poverty level. When the poverty level increases, the minimum wage should automatically increase a similar amount. Democrats are promoting this because it is good for business and good for labor - it's good for everyone.
http://www.watchblog.com/democrats/archives/002994.html
Linear Mode
