The U.S #economy is affected whenever its government tries to correct market failures using wage increases or decreases.

Usually, the argument for a wage increase is based on the idea that such an increase would alleviate the poor condition of low-wage workers. They posit that such government intervention would sporadically incentivize productivity because workers have more money at their disposal.

Is this the outcome? Economists have overtime disclosed how the middle and lower class often tend to be very consumerist in lifestyle. With a wage-rate increase, income spending certainly rises, and even more so amongst the middle and lower class.

Why is this important?

With wage rates increased, low-income earners may often sign up for more loans to meet up with pressing demands they face, knowing that their paycheck is higher. Greater income spending would be met with subsequent loan repayments that puts them in the same economic position.

So, therefore, there may be an initial stimulus within the economy, but it would most likely remain short-lived.  

Most importantly, such hikes could significantly impact low-income industries and their ability to hire entry-level positions. This is because such industries may not want to incur such heavy commitments for the time being. Start-ups may find this policy quite difficult to cope with. It will most likely reduce their ability to hire new workers in order to cut down costs.

Start-ups and low-income industries play an important role in the U.S. Most low-income industries often afford positions with minimal skill requirements such as warehousing, storage, rental services, and waste disposal services to less skilled populations. Hiking wage rates would significantly affect how these industries can hire and how they can scale.

This is evidenced by data from the Census Bureau. It reveals that for each 10% increase in the #minimumwage in the United States, there is a 2-4% decline in the states’ Gross Domestic Product by low-skilled industries.

In conclusion, a hike in the wage rate has its obvious benefits, but such benefits are short lived and has a negative long term effect on monopolistic firms, low-skilled industries, and ultimately low-skilled workers.