What Fuels the Economy

Wage Basics

What Fuels the Economy

Raising the minimum wage benefits our entire economy because it increases the purchasing power of the people most likely to spend any additional income on goods and services.

One of the most overlooked benefits of a higher minimum wage is also one of the most important. Raising the minimum wage to $15 an hour would not just pull millions of Americans out of working poverty, it would pull our entire economy out of the slump it’s been mired in for decades.

Today, almost 70% of American GDP is dependent on consumer spending, meaning that the vast majority of our country’s economic activity comes from people actually buying things: food, clothing, electronics, cars, and Big Macs. But with so much of our wealth and income being funneled towards a small number of rich people, that consumer spending has been artificially suppressed. There’s only so much one rich person can buy no matter how rich they are. One person can only eat so many sandwiches or drive so many cars. With all that money flowing to the ultra-rich, millions of Americans are left without the means to consume as many goods and services as they would naturally like to.

This is part of the reason why so many major corporations have huge war chests with billions of dollar in funds that they’ve decided aren’t worth investing – it doesn’t make business sense to increase production without the consumer demand to meet your increased supply. How do we incentivize businesses to invest more, and make our economy start running at full speed again? We put money in the hands of people who will spend it. The best economic stimulus there is putting more money in the hands of American consumers, which in turn creates economic activity that gives companies a reason to expand and hire more workers.

It’s this dynamic that makes raising the minimum wage quietly one of the most pro-business policies out there. The benefits of a customer base with more money to spend (not to mention a happier, more motivated staff with less turnover) can do wonders for a company’s bottom line. In California, for instance, CEO of Wetzel’s Pretzels Bill Phelps was initially worried about rising labor costs as the state’s minimum wage increased, but he soon discovered that every single year the minimum wage rose, overall sales at their California stores increased by 12-15%. And Wetzel’s Pretzels isn’t alone in this experience. Business owners across the country have seen significant increases in sales when their local minimum wage has been increased.

Raising wages may seem scary to business owners in the short run, but even the shallowest look at the macroeconomic effects make it clear that this is a win-win for both workers and business owners. There’s a reason Henry Ford paid his workers enough to afford to buy the Model T’s they were making – it’s just good business.

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