In his State of the Union Address, President Obama requested that Congress raise the minimum wage and challenged his opponents within Congress to live off $15,000 a year. The current Federal minimum wage stands at $7.25 an hour, and the president is asking that it be increased to $10.10 an hour as a way to “give millions of the hardest-working people in America a raise.”
Proponents to this proposal say that this raise would provide relief to many Americans who are living in poverty. According to the Washington Post, raising the minimum wage would benefit 12 million people who are living in poverty and even pull 2 million out of poverty altogether. The increase in wages would help many Americans “make ends meet,” President Obama stated in his address to the nation.
Unfortunately, this change may not be as simple and advantageous as the president makes it out to be. One of the consequences of raising the minimum wage may be explained through a simple supply and demand curve. If employers are required to pay their employees more, their cost of labor would increase causing the supply curve to shift down (or to the left). At the same time, if people have more money to spend, they will desire more goods, causing the demand curve to shift up (or to the right). The result of these shifts is an increase in prices. Consequently, even though many people will have more money to spend, the prices of the things they will want to buy will increase preventing their money from going as far as it did before.
Another outcome of raising the minimum wage is a loss of jobs. If employers are asked to pay their workforce more, they will not be able to hold onto all of their current employees. They will have to make cuts to cover the increasing cost of labor. Although some people may be earning more, others may be earning substantially less as they will be unemployed.
Finally, when the earnings of some Americans are increased, they may lose access to health care coverage. According to the Washington Post, some people may no longer qualify for Medicaid when their income is increased. The Affordable Care Act (ACA) has regulations that provide subsidies for purchasing health insurance through the exchange to low income earners if they do not qualify for Medicaid. Unfortunately, there is a gap between the maximum income required to earn Medicaid and the minimum income required to earn subsidies for purchasing insurance through the ACA marketplace. As a result, more people will be pushed into this gap of no health care coverage.
Although the idea of allowing many Americans to earn more money seems incontestable, there are many factors that go into this proposal that need to be addressed and considered before action is taken. The president, along with Congress, needs to take the time to study all possible outcomes before making any impulsive decisions regarding minimum wage laws.