The Effects of Inflation in Malaysian Economy Essay

The inflation rate is constantly changing every day. The entire investment community is always on the look out for what the future inflation rate may be. It has been proven that a healthy economy preforms best when inflation rate is

There is an old cliché that say “the more money you make, the more you spend.” How accurate is this statement? What effects does wage increases, have on inflation? Lately the topic of discussion conveys the matter of minimum wage increases sparking an increase the cost of living. The individuals who would not receive pay raises; but will be affected by cost of living increases as well as labor costs, do not want to see the wages go up. However there are people scrambling to survive on minimum wage or slightly more, while other individuals struggle to feed their families every month. The other side of the debate is the wealthier population feels the lower income population needs work harder to move up the corporate ladder in order to earn more money. While the individuals themselves feel they should be making more money for the work they currently do and services they provide. In this paper, I will cover subject matter pertaining to the many different aspects that come along with wage increases. After analysis of all of the information the choice will be made whether to side with wage increases based on the opinions of individuals on both sides of the argument. Also I will highlight what will be best for the economy and in my opinion what is best for the people.

Next, another problem the rise of minimum wage poses is the rise of inflation. If employers are required to pay their employees more, then they need to do something to compensate for the extra money they are losing. With this in mind, employers would have to increase the prices of goods. But sometimes raising prices is not an option for employers. “If a business cannot simply pass along its new labor costs, it must somehow absorb them—by eliminating workers rendered unproductive by the new minimum wage, by replacing labor with more-productive machines, or by cutting production” (Intorduction 2). This brings back the issue of minimum wage causing a dramatic increase in unemployment. Sherk believes it is the wrong time to increase minimum wage, due to the fact that America is currently in a recession. The right time to think about raising minimum wage would be when the unemployment rate drops drastically. Sherk states “In 2007, Congress voted to increase the minimum wage, raising it in three $0.70 increments from $5.15 to $7.25 an hour. The final installment represents a 10 percent increase in the cost of hiring minimum wage employees” (Sherk 1). Seemly inflation and minimum wage increases influence each other.

1. What is inflation? Inflation is an increase in prices for goods and services (What is Inflation?).

Raising the federal minimum wage to $15 an hour can have detrimental effects on society. Some issues that may arise are increases in unemployment and small businesses not being able to handle the financial burden, which will lead into job benefit cuts. Furthermore, a rise in minimum wage will cause inflation and businesses to raise the prices of their goods and services. People purchasing power will continue to stay the same; the struggle to close the gap between products and services will not

Raising minimum wage would lead to an increase in demand and a lowering of supply. The price of goods would increase, along with the services. The shortage of jobs would increase the poverty rate and crime rate.

There will be inflation or rising costs for basic necessities such as housing, food, utilities, transportation and child care. Because of inflation, the minimum wage forces most of the people into poverty. If a person works full-time and his minimum wage is only $14500, and if he has two children this income is more than $4000 below the poverty line. So, increasing the minimum wage would rise almost a million people above the poverty line. But if minimum wages increases, it would result in the loss of jobs because employers would lay off workers to offset the additional labor cost. But, raising the minimum wage has multiple benefits. As an increase to minimum wage moves families above the poverty threshold, their need for public assistance

The United States’ minimum wage has been a concerning issue amongst the low wage earners because of the amount they earn is not enough for them to live on their own. Therefore causing the citizens who earn minimum wage to have an impossible time finding a place to stay and expenses for daily survival. Increasing the minimum wage will solve the issues that the minimum wage earners make, thus increasing the chances of survival for the entire population. Inflation is one of the reasons why minimum wage is a big issue, the minimum wage has not been keeping up with inflation at all causing things that would regularly be cheap to be more costly than it used to be. There are people who are against the raise of the minimum wage and may say that there will be an increase between of unemployment rate between the younger people because of the fact

Another thing business might do in a reaction to the raised minimum wage is increase prices. This will indeed make the poverty-stricken poorer. With food and other goods costing more, and jobs being hard to find, it will be extremely difficult for people to survive in the economy.

If we look this in an economist’s perspective, the businesses that will be directly affected by the new minimum wage are factories, supermarkets, fast food franchises, small hotels, restaurants and grocery stores, as well as transportation businesses. As a consequence, the increase in the cost of production will be transferred to the consumers. Those people who are all well paid will have less headache dealing with the increase in the cost of living. But how about the college students, the people who just started to work? They need to deal with the increase in the price of food, as the transportation cost has increased. These people who can barely make ends meet will find eating outside to become more expensive than before and need to cook food for at home. Certainly business like restaurants and hotels will suffer, because if the firms increase their prices, they would get fewer customers, but if they stick to their current charged, the businesses would get lower profits as the employees’ wages have increased. Certainly, a little inflation rate is favorable for economic growth, as people will invest on assets when they expect the price will increase. However, if the level of inflation is too high, and there are too many goods where prices are inflated, people will afraid to spend their money, thus the economy will

There are many people and businesses that are affected in an inflation. The first being people on a fixed income like the retired that are affected during an inflation because total wealth has lowered it takes more money to pay daily expenses due to lowered value of the dollar. The next group is the creditors, If they do not keep up with the rate of inflation that creditor could lose part or all profit from loans or other forms of debts. The last group is long term contractors, this is mainly due to that long term contracts do not take rates of lower inflations and could cost contractors profits gains due to lowered

In essence, this paper thus seeks to purport that raising the minimum wage would increase disposable income while at the same time encourage the country’s inflation and push the unemployment rate to new levels. Clearly, to some extent raising the minimum wage is both an economic and social safety for all those involved but at the same time has crippling effects on the government’s economy and those involved at large.

An increase in unemployment and product prices will occur because when the workers are paid more, businesses will have to raise the prices of their goods in order to still make profit. This may lead to inflation as well. Seeing the law of demand, when the prices increase, buyers will purchase less. This will cause the demand curve to shift to the right (Hubbard and Anthony 2015). If labor is more expensive employers will be forced to hire less workers. As for supply, higher prices of supplies will create a surplus in supply, causing the curve to shift to the right (Hubbard and Anthony 2015). The higher the wage, the higher the number of workers willing to work but the number of workers hired will be lower. This increase in unemployment can hurt the prices of goods and services and businesses will have to allocate more money for wage, which makes the charge more for their products. Raising the minimum wage can lead to many consequences, it can even lead to a decrease in economic

A lot of literatures have already studied about the inflation and inflation prediction and in this paper literature review will be discussed from the theoretical aspect and empirical aspect. The researches of the inflation, which are studied, by a lot of scholars in the field of economics have been conducted for a long time especially during the 1970s and it is the heyday when people would like to pay more attention to research the inflation. The inflation has become a hot topic among the economic life and social life since 1987. However, no matter whether it is in the western economic field or in the Chinese economic field, people have different definitions on the inflation and so far there is no unified opinion and conclusion can be accepted generally by everyone. For example, Wyplosz and Burda (1997), Blanchard (2000), and Barro (1997) define that inflation is a sustained rising in the overall price level of products and services in an economy throughout the time period. By contrast, Zha and Zhong (2016) define that inflation is considerable as the mechanism to improve economic growth. In general, the common definition of the inflation is that the inflation is a continuous rising process in the aspect of price. In other words, the value of the currency decreases continually.

I Poonam Pillai hereby declare that the term paper report titled study on Inflation in India that I have submitted is original. I was in regular contact with nominated guide and contacting him for discussing the project.