Why is raising the minimal wage such a hot topic? Is it because the owners are greedy and do not want to pay for their labor, or are the people working thinking they are worth more than they actually are? Will raising the minimal wage actual help or hurt our economy? These are all questions that are being debated and it is a very politically charged issue. The question both Democrats and Republicans are asking is; how will a hike in the minimum wage affect the economy? Each political party point to factors that support their side. Republicans who typically support supply side economics (reduction of business taxes/expenses) and a lassie faire approach to business claim that by raising the minimum wage, the cost of production increases. When the cost of production increases aggregate supply decreases, thus reducing overall GDP. .
If GDP reduces, then our economy is producing less final goods and services, which means we need fewer workers, thus higher minimum wage will cause higher unemployment levels. They continue their argument by claiming as wages increase more individuals will get off the couch join the labor pool, but as the cost of supplying a job increases from $7.25 to upwards of $15 businesses will be reluctant to hire additional workers. Instead industries will look toward capital investment in technology to replace mundane tasks typically completed by a person. A touchscreen at the counter that can take your order and payment instead of a cashier, for example. At $ 7.25 an hour it might not be worth it, but at $15 a computer that doesn't take bathroom breaks, or gives friends free shakes sounds good. This decrease in supply of job opportunities and increase of demand for now higher wage jobs will create a surplus of workers, but as the local government mandates a minimum wage above the equilibrium level price, they effectively create a price floor.
Democrats will argue that 70% of our economy is based upon consumption, and that by increasing wages of the poorest in our society we will see the largest change in GDP.