Minimum Wage and Whether It Should be Raised
The minimum wage refers to the lowest hourly payment rate that an employer can offer to an employee (Neumark and Wascher, 2008). The minimum wage can be determined on a daily, hourly, or even monthly basis. The minimum wage law states that it is unlawful for someone to pay employees a lesser amount of money for the work done than it is required. The function of the minimum wage is to assure a person is earning a relatively decent reward for the effort put. The minimum wage differs from one country to another. The institutions responsible for setting it may differ as well, depending on the law and traditions. For instance, in the U.S., a statute sets the lowest wage whereas, in the UK, it is set by the wage council of each industry (Waltman, 2008). The minimum wage for many countries is low, making the lives of the working population a bit difficult. There have been policies established to raise the minimum pay in a number of nations. At the same time, there are nations that are against raising the minimum pay due to the negative effects associated with this.
Positive implications of raising the minimum pay
Recently, there has been a demand by many states to raise the minimum pay. States in the US that are moving towards the achievement of this goal include New York, New Jersey, Missouri, and Connecticut. In fact, Iowa and Sen. Tom Harkin are pressing for the federal rise in the minimum income of up to 9.80 dollars per hour to be achieved by 2014 (Auerback, 2012). This is a good policy as it will improve the welfare for the citizens. However, if the issue is not handled carefully, it could lower the economic growth of a nation. There is much importance in raising the minimum earnings.
Raising the minimum pay will improve the welfare of families. If the lowest wage is raised, the income of at least 28 million Americans will be increased. Women specifically would benefit as they are more likely to work for lesser wages than men. Raising the minimum pay is, therefore, a good and friendly policy to the family. If the minimum pay is raised, some people who are working may wish to retire, go for training, or have children, and this means that opportunities for those looking for jobs will be available (Auerback, 2012). The working families would, therefore, have time for other things such as community life and politics. People would start to regain the middle-class political association they were in before. When the minimum pay is increased, definitely the pay roll and revenues from income tax would also increase. This will cause a decrease in the federal deficit and imply that issues of the social security matters will be resolved leading to a better life for the citizens (Waltman, 2008).
Another reason why it is important to raise the minimum income is that it is good for the recovery of the economy. Regular people should be integrated in the economic development process. This is important because the economy depends on those who really spend in the economy for its growth. Minimum wage does not only bring about issues of income inequality, but also focuses on other important aspects in a nation such as the economic system and equal distribution of resources (Auerback, 2012). The gap that exists between real wages and productivity is very high, and this has an influence on the relationship between real earnings and expenditure. There should be a comparative wage to the productivity of the workers. If the workers are paid a lesser wage as compared to their productivity, the economy will never recover. There should be policies and programs that are directed towards raising the minimum wage. This way, the economy will recover and go back to where it was before. The problem with the economy is not productivity but the lack of broader sharing of the gains from the productivity. Those at the top are in control of the Federal Reserve Board, the trade policy and the Wall Street bailout (Baker, 2012). They make huge profits at the expense of others not belonging to the top. Therefore, raising the lowest wage will bring trickle-down economics, which is more productive as it shifts resources to those that keep the economy moving.
Increasing the minimum wage helps people avoid debt. Debt makes people and the nation at large lag behind economically as compared to other nations. In 1950s and 1960s, free enterprise was focused on creating productive capacity and ensuring that workers are engaged in making things that are useful rather than using them as financial products. The economy is focused on improving the real estate, finance, and insurance sectors, and this has brought about migration of wealth to the top 1% (Waltman, 2008). In addition, real wages have decreased growth in productivity. This is shown by the decline in hours that employees work in the productive sector over the last decade. Before the 1970s, growth in real wages increased growth in productivity. Due to the increase in productive capacity, the consumption rates of the workers also increased. The high incomes that were gained brought about growth and development of the economy. The incomes came from success in structuring things and distributing the gains. In the modern times, large earnings come from the monetary sector which captures a large amount of the national income and uses it to invest in financial property, in the markets. This however, adds very little productive output (Auerback, 2012).
Huge improvements could be made if the minimum wage is increased. This will allow the poor workers to do away with debts and, therefore, use the financial resources gained to improve their lives. This way, they will at least rise into the middle-class, which is their desire. This might cause other negative implications, though the benefits outweigh the costs. For instance, corporate profits might be affected and suffer a bit, and some enterprises might disappear. Currently, the corporate profits are at a record high level. However, whether the profitability levels can be sustained or not is questionable. It is evident that many firms have a lot of unused capacity because people cannot afford to acquire their products and services. This implies that the sales growth is slow, which leads to lagging wage rates. There has been a rise in the reliance of food stamps, which is over 14 million. As Auerback (2012) explains, financial engineering has helped in the creation of a significant acceleration in debt creating a burden to consumers as they are the ones that bear the debts. This calls for a better model, which is the policy to raise the lowest wage.
Raising the minimum wage will help protect workers from abuse. Many workers are being exploited and abused at their places of work just because of their poverty situation. A rise in the minimum earnings will aid in alleviating the exploitative and abusive practices of particular employers who use their power and authority wrongly (Cunningham, 2007). Some employers take advantage of the low minimum wage that exists and, therefore, abuse their workers as they know that getting out of the situation for the workers is a bit difficult. They use informal methods such as undocumented labor to undermine the poor in the society.
An increase in the lowest wage will bring about justice for the workers. It would be compensation to the workers for their unrealized efforts. For instance in the American scenario, the class struggle has been undertaken with those in the top 1%. There has been a dramatic redistribution of personal and national income, which has favored the rich in the society over the past 30 years. The period in question has experienced a decline in the economic performance of the United States (Cunningham, 2007). There are those who have suffered the economic crisis and, therefore, raising the minimum income would be like compensating their losses. Those who have suffered the economic crisis are the working population. Raising the minimum pay will, therefore, bring justice to them.
Negative implications of raising the minimum pay
According to Baker (2012), the argument against raising the minimum pay is that it will decrease employment consequently hurting the people that are supposed to benefit from raising the minimum wage. Research has shown, however, that raising the minimum wage does not affect employment, and in a few cases where there is loss of employment, (Baker, 2012) states that the impact is small. According to Baker (2012), a 20% rise in the minimum pay leads to 2-3% reduction in employment of young people. To other people, however, this impact is not insignificant.
According to Gorry (2012), raising the minimum pay creates more jobless young Americans. The unemployment rate for people aged 16 to 19 years in the United States in August 2012 was at 23.8%. According to Gorry (2012), the calls to increase the minimum pay from 7.25 dollars to 10 dollars per hour will mean more jobless young people. High minimum wages create a tradeoff between higher salaries for those that are employed and higher levels of unemployment. This is because when the minimum pay is increased, workers who earn less than the new higher minimum pay are rendered jobless as firms decide to get by with a few workers instead of paying high levels of wages. Therefore, a higher minimum pay is specifically damaging for future prospects of young workers. According to Gorry (2012), the U.S. should focus on creating new jobs rather than increasing the minimum pay.
Raising the minimum pay is of great importance, as it will lead to not only the well-being of citizens, but also to the welfare of the entire society. However, as much as the minimum pay is beneficial for a country, the negative effects of raising it should not be ignored as the youth are the future leaders. Some of calls to push for an increase in the minimum pay have a political connotation. As Mathur and Strain (2012) state, those who today push for higher minimum pay are very well planned. However, good plans and intentions do not necessarily make good policies. The reality is that raising the minimum pay would do more damage than good for the very group of people (workers) that most need help. This would Cause low-skill workers to have fewer jobs, lesser earnings, and more poverty while giving an income increase to higher-earning households is not only bad policy, but also, not fair. According to Schulz (2012) good intentions are not always good enough, particularly given the damage done to those Americans who most need a break.
Auerback, M. (2012). Five Reasons why we should raise the Minimum Wage. It’s Smart Economics and beneficial to society. What are we waiting for? , 4(3), 122.
Baker, D. (2012). Raising the Minimum Wage is Cheap and Easy. Making Markets Progressive, 6(17), 101.
Neumark, D., & Wascher, W. L. (2008). Minimum wages. Cambridge, Mass. [u.a.: MIT Press.
Waltman, J. L. (2008). Minimum wage policy in Great Britain and the United States. New York: Algora Pub.
Cunningham, W. V. (2007). Minimum wages and social policy: Lessons from developing countries. Washington, DC: World Bank.
Gorry, A. (2012, September 27). Raising minimum wage is sure bet to create more jobless young Americans – Economics – AEI. AEI – American Enterprise Institute for Public Policy Research. Retrieved November 26, 2012, from http://www.aei.org/article/economics/raising-minimum-wage-is-sure-bet-to-create-more-jobless-young-americans/
Mathur, A., & Strain, M. R. (2012, July 18). Are minimum wages fair? – Economics – AEI. AEI – American Enterprise Institute for Public Policy Research. Retrieved November 26, 2012, from http://www.aei.org/article/economics/fiscal-policy/labor/are-minimum-wages-fair/
Schulz, N. (2012, April 11). Raising Minimum Wage is Maximum Stupidity – Economics – AEI. AEI – American Enterprise Institute for Public Policy Research. Retrieved November 26, 2012, from http://aei.org/article/economics/fiscal-policy/labor/raising-minimum-wage-is-maximum-stupidity/
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