Saturday, December 7, 2013

How Minimum Wage Really Affect "Income Inequality"

Raising the minimum wage would have a catastrophic effect on the economy because of a little discussed "unintended consequence."

While the wages for the poor would increase, thereby increasing their buying power (albeit temporarily), which in turn necessitates an increase in the cost of goods (which then reduces the buying power), the wages for the middle class will remain the same. Yet, the increase in the cost of goods will also affect that middle class, which, in turn, casts them downward into poverty. That is what happens when the costs increase for the middle class but their income does not increase.

The middle class is disappearing and the income gap is widening precisely because of constant increases in minimum wages.

STEP 1 - minimum wage is increased and the poor get a temporary boost
STEP 2 - businesses must now increase the prices of goods, and/or lay off workers
STEP 3 - the buying power of the poor again decreases due to the increase in prices. Meanwhile, the middle class, who received no income boost because they already make more than minimum wage, will have to pay those higher prices, reducing their buying power, also
STEP 4 - The middle class is no longer middle class, and the income gap widens

The economy works just like physics, and the same laws apply. For every action there is an opposite and equal reaction.

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