Recently, there have been many ongoing debates about whether or not the government should increase the federal minimum wage. Conventional wisdom says that an increase in the minimum wage is a good idea because workers will make more money.

However, this is an incomplete analysis of the situation.

The federal government should not increase the minimum wage because modern economics have proven that an increase in minimum wage causes inflation, hinders small-business growth, and increases unemployment.

Small-businesses offer the largest amount of minimum wage jobs, which means that the labor costs of small-businesses will rise the most. According to the National Federation of Independent Business, “[s]mall businesses are the least able to absorb such a dramatic increase in their labor costs” (National Federation of Independent Business 1).

“A minimum wage hike right now would be one more factor driving up costs for employers…especially among the small businesses that create most of our nation’s new jobs” (MacDonald 2), David French, senior vice president for government relations at the National Retail Federation, stated. Aside from labor costs, other expenses are hiked, such as taxes. “Employers also pay taxes for unemployment and disability insurance, as well as workers’ compensation” (Lobosco 1). Not only do small businesses have to pay their employees more money, they also have to pay a larger amount of taxes. Because of this, an increase in minimum wage hinders small-business growth. There is no room for growth if businesses have a rise in expenses.

Inflation is when the general level of prices increases. When the minimum wage increases, the workers have more spending money, which causes inflation. For example, Jack in the Box stated that they “[plan] to increase menu prices 1.4 percent” (Wong 1). This same increase, aside from the percentage amount, can be said about many, if not all, companies in the United States. Many people, although, do not believe that this will occur.

In 2009, however, the minimum wage increased similarly and there was a significant impact in prices. In The Gazette, Blane Beschta, the owner of a diner, stated “ ‘People are going to say that $3 for a cup of coffee is crazy, but that’s what it’s going to take if we need to raise wages to what is being proposed’ ” (Ford 2). Agreeing, Dollars and Sense published an article that stated that “[t]his is especially true when there are sudden upward spikes in the prices that form a large share of what people buy – as was the case with food and fuel prices a few years ago” (Macewan 1).

Macewan was also referring to the 2009 increase when analyzing the effects of minimum wage. Based on the information from the 2009 increase, the federal government should be able to predict that increasing the minimum wage increases prices significantly for everything, not only small businesses, which causes the economy’s prices to inflate.

An increase in minimum wage also brings a spike in unemployment. According to the Washington Times, an increase in wage “would cause some businesses to cut the number of jobs to contain labor costs” (Dinan and Boyer 2). All businesses want are their profits to increase, but they are unable to do so because labor costs also rise. And because businesses reduce the amount of people they hire, many people are out of jobs. The Congressional Budget Office calculated, approximately, how many jobs would be lost if the minimum wage increased to $10.10. The results were frightening. “Once fully implemented…the $10.10 option would reduce total employment by 500,000 workers, or 0.3 percent” (Congressional Budget Office 1).

Still, labor costs are not the only reason why the unemployment rate goes up along with an increase in minimum wage. A recent study showed that unemployment hits the hardest on teenage workers. Because teenage laborers “are inherently less skilled and [are] more likely to make [the] minimum wage” (Robinson 1), they are affected the most. The truth is that businesses do not want to hire unskilled workers. Most teens are unskilled, which makes employers sway away from hiring teens and towards a more skilled worker.

Altogether, it is seen that the unemployment rate increases significantly when the minimum wage increases because employers are hesitant to hire more workers and to hire young workers.

Many people buy into the theory that an increase in the minimum wage is beneficial to all; however, they do not analyze the situation completely. After analyzing the negative impacts of an increase in the minimum wage, we realize that it is not at all beneficial.

By increasing the minimum wage, the general prices of goods increase, which causes inflation. Businesses raise the costs of their goods or services because their labor costs are going up. And because businesses’ labor costs are rising, unemployment increases because employers are unwilling to hire more employees since that would mean even higher labor costs.