Is it true that abolishing the minimum wage will boost the economy and bring prices down?

Question

I heard that from somewhere.

Answer 1

It depends on which side of the fence you are on, being either a buyer or a seller. Getting rid of minimum wage would reduce the cost of inputs for sellers, thereby allowing them to increase their supply and lower prices. However, the worker's incomes would go down, therefore reducing their demand for normal goods. The suppliers would become more efficient in production, but there would be less people out there willing to buy their products, therefore causing businesses to lay off workers to control costs. However this is just assuming the demand of workers that are receiving minimum wage, and not the demand market as a whole. Either way though, I do not believe that this would cause the economy to be boosted, and in fact may cause an overall decline.

Answer 2

The real minimum wage has been declining over the last 10 years so the federal minimum has been almost abolished (before the new increase) over the last several years. If you have not noticed the boost in the economy and the lowering of prices it is not really surprising. Since minimum wage workers have low pay because the are not very productive small changes in the number of them that are working, or how efficiently their labor is utilized can not have a big effect on the overall economy. Their total contribution to the economy is about 7 million workers X $10,000 per year $70 billion out of a $12,000 billion dollar economy or little more than one half of one percent.

Answer 3

It would not boost the economy, but it could help lower the prices of something. The problem with the minimum wage is it was never meant to be a living. It should be a starting training wage mainly for high school and college students while is school to give the basic work experience. When the govrenment raises the minimum wage it actually hurts everyone making more than that, because it drives the cost of everything up which means the people who do not get a raise when it goes up actually can not afford to buy as much. Its like giving them a cut in pay.

Answer 4

There is a theory that says that abolishing the minimum wage will lead to greater efficiency in the economy.

The basic premise can be seen from this example: assume there is a worker who is capable of providing only $9 an hour worth of work to a company. Now, if the minimum wage is $10 he will be unemployed, because no firm will be able to earn a profit by hiring him. But if a firm were able to pay the man $8 an hour, both the firm and the man would be better off. Thus, the economy with the $10 minimum wage is inefficient in this case.

Answer 5

I do not believe it. By abolishing the minimum wage low skill workers will have even less to spend, business will save a minute amount overall which is unlikely to be passed on to consumers. I would suggest that raising minimum wage can have the effect of boosting spending and the economy to a limited extent, not the other way around.

Answer 6

Probably not - it is just a fixed cost of doing business for everyone.

If you remove that cost, then everyone still will have the same relative costs once free market efficiencies set the cost.

And it might be higher, not lower :)

Seriously, are more people going to eat at my local jack in the box because there is no more minimum wage?

Uh no.

Are they going to re-invest any savings, should their actually be any, into food that will draw more people in?

Uh no.

So economically speaking, what wouldbe the point?

edit:

The first poster's case, while cleverly stated, is a fallacy.

If the worker can provide $9 worth of labor, then in an efficient market, he would earn $9, and so setting the minimum wage at $8 would no affect him except to possibly force him to give $1 of value added to the employer.

Anyway, In an economy of any size, what is optimal for the economy as a while wil not be optimal for every individual at any given time or maybe (probably) ever.

The question was posed as a macro-economics question regarding the efficiency of the entire economy, not a micro one focused on a hypothetical worker.

Any answer should reflect the question asked :)

Answer 7

That depends on how elastic or the supply and demand for labor is.

If the demand for workers is elastic, then small changes in wages result in large changes in employment. This means that employers can easily add more labor and sell more product at a cheaper cost.

On the other hand, if increasing the numbers of workers will have little effect without also increasing capital, then the demand for workers will change a very little amount.

Also, in terms of output, if the firms are in an imperfectly competitive market, they will maximize revenue only at a particular point in their demand curve. If lower prices leads to less revenue, then there will be little incentive to lower prices, and increase output. Hence, in a range, the effect of wages will not alter employment.

Answer 8

It will artificiality raise incomes and make people feel they are making more. But prices will go up. Not the worst thing that can happen in an economy.