Sunday, March 11, 2007

On Increasing the Minimum Wage

From a comment on the God's Politics blog (see sidebar):

"Economics 101 creates a lot of free market fundamentalists. A little further study shows economic principles are not quite that simple. Several states have passed minimum wage increases, so we do have a little data to look at. Florida, for example, increased the minimum wage, despite dire predictions of the results. Here is an analysis of their situation one year later:

Florida Minimum Wage Report

Note: None of the dire predictions came true! Why is that? As other commenters have mentioned, extra money in the pockets of multi-millionaires does not necessarily result in additional spending. But additional money in the pockets of poor people results in immediate spending on consumer goods, which leads to an increase in demand for consumer goods, causing business to increase production, hiring more employees and purchasing more raw materials, resulting in - again - increased demand for consumer goods! Isn't it wonderful? A few dollars in the pockets of people who will spend it, multiplies into many dollars throughout the economy!"

Here's the problem I see: the idea that "minimum wage increases 'force' companies to fire workers in order to afford the increase" seems to make sense. However, evidence suggests that this is not the case.


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