Final answer:
Increasing the minimum wage has complex implications, including potential job losses and higher consumer prices, but also possibly counterbalanced by increased worker productivity and spending power which could fuel economic demand.
Step-by-step explanation:
Potential Problems with Increasing Minimum Wage
When discussing the impact of increasing the minimum wage, there are several potential problems to consider. Enhanced employee satisfaction might not necessarily be a drawback, but it is not the primary concern in this context. The increase in minimum wage may lead to a conflict of goals when it comes to addressing poverty and inequality. Firstly, higher wages could lead to job losses. If a 10% pay increase for 98% of minimum wage earners results in 2% of them losing their jobs, assessing the net gain or loss to society is complex. This analysis requires considering the demographics of those who might lose their employment, such as family breadwinners versus part-time workers. Secondly, raising the minimum wage can lead to higher prices for consumers, potentially negating the poverty-fighting purpose of the wage hike. Economic models suggest, however, that some negative effects may be offset by increased spending power of workers and increased productivity, leading to greater demand for goods and services.
When considering whether the minimum wage should be increased, it is necessary to weigh these complex factors. The impacts on employment, consumer prices, worker productivity, spending power, and the target population must all be critically evaluated to determine the most effective strategies for reducing poverty and inequality.