While this might seem fantastic for the economy, financial experts are concerned about recent hikes and the proposed federal wage increase might impact the national economy. 

The projected federal minimum wage increase is more dramatic than any this country has ever seen. This is making it impossible for economists to draw on studies about the effects. However, based on market trends and the fundamental laws of economics, they’re predicting several negative fallouts. 

Let’s explore what happens when minimum wages increase. 

How do wage increases affect the job market? 

Economists predict the proposed federal minimum wage hike, along with the state and local increases, will have two negative effects on the job market: 

1.) Move-outs to the suburbs 

An increase in local and state governments minimum wages will likely push employers to move because they can not afford the higher wages.

For example, Washington, D.C., has raised its minimum wage to $14 an hour. A Washington-based company would move to a suburb like Arlington, Virginia, where they can pay their workers almost half the hourly wage. The move would ensure the profit of the company and also that they stay in business. 

2.) Businesses cutting corners 

Businesses forced to increase worker pay will need to find ways to stay profitable. They will likely attempt to cut corners any way they can.

This may translate into:

  • letting workers go
  • replacing humans with robots where possible
  • cutting down on their level of service to reduce the need for human resources

This, in turn, will trigger an increase in unemployment rates and underemployment rates across the country. 

How do wage increases affect the consumer? 

When all the dust settles, it is the average consumer who will likely bear the brunt of the minimum wage hike. 

Most companies hiring minimum-wage employees are small businesses with profit margins that are too thin to absorb a jump in salary costs. These businesses will be forced to pass higher expenses on to consumers. 

The consumers most likely to be affected by the hike are the poor and middle class, who tend to frequent businesses that hire minimum-wage workers. 

How do wage increases affect federal taxes? 

One positive impact of a minimum wage hike is the hope that an increase in wages will reduce the number of workers who are dependent upon government assistance programs. This may reduce the average taxpayer’s burden. It’s also important to note that, when low-wage workers make a little more and lose government assistance, they may be coming home with less pay after a wage hike.