Effect of minimum wage rises

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One of the most divisive topics in the US has proved to be the minimum wage. Different US states offer different minimum salaries. Colorado has a minimum wage rate of $9.30 an hour, $8.19 for Florida, and $8.25 for Illinois. The highest minimum wage rate is $10.50 per hour in California, while the lowest rate in the US is $7.25 per hour in Pennsylvania, North Carolina, and Wisconsin. In Missouri, $7.70 is the minimum wage and Hawaii has $9.25 per hour. Connecticut has a minimum wage of $10.10 per hour while Maryland and Maine have a minimum wage of $8.75 and $9.00 respectively. Michigan and Ohio pay a minimum wage of $8.90 and $8.15 respectively. In 2015, US was ranked at 11th position with a minimum wage of $7.25 per hour. Australian took the 1st position with a rate of $9.54 while Luxembourg came in second with $9.24. Belgium was third with a minimum age of $8.57, and Ireland took the 4th position with $8.46 per hour. France closed the list of the five countries that paid a higher wage with $8.24 per hour. The wealth gap between the rich and the poor raises concerns in the US. Averagely, the upper wealthy people are 70 times richer that the poor people. The history of the minimum wage was first enacted in 1894 in New Zealand, and the US adopted the minimum wage policy in 1938 where it charged $0.25 per hour, and since then, a lot of changes have occurred. In 1939, the wage was raised to $0.30, and in 1956 it rose to $1.00. Significant changes also take place in the following years and 1997, the wage increased to $5.15 per hour. In 2007, the wage was charged at $5.85 and in 2008, it was revised to $6.55 per hour. The current minimum wage of $7.25 per hour was enacted in July 2009. Increasing the minimum wage will not only lift the lives of the American people above the poverty line but also strengthen the entire economy.

Impact Raising Minimum Wage

Minimum wage increase is an essential aspect towards improving the economic activities that will result in economic growth. Raising the wage will positively spur the economic objectives. According to Economic Policy Institute, it is stated that “raising the minimum wage to $10.10 per hour from the current $7.25 per hour will have a positive result of injecting $22.1 billion net income into the US economy” (Economic Policy Institute). Besides incorporating the economic policy of minimum wage will definitely create approximately 85,000 employment opportunities for the citizens. The move to aggregate the minimum wage will significantly assist people who earn low-income and thus enhance and boost the overall economic development. Notably, increasing the US minimum wage from $7.25 per hour to $10.10 would see the wages of approximately 27.8 million working people rise. Undoubtedly, the American working individuals will thus take home an additional $35 billion salaries which will be a key instrument to the economy. Liu and Thomas assert that within the initial stage of the raise in the minimum wage, the nation’s economy will realize a growth of around $22 billion (Liu and Thomas 29). Furthermore, in the economy, the long-term effect will see an 85,000 employment formation. Arguably, an increase in the minimum wage will lead to considerable job creation. This will positively boost the economy, and the level of GDP will increase.

Reduction in the poverty levels is one the primary factors that will result from an increase in the minimum wage. Undoubtedly, this will lead to an increase in the standards of living of the American people. A worker who earns an hourly wage of $7.25 translates to a wage of $15,080 in a year. Kukathas reports that “increasing the minimum wage to $9 would lift 300,000 people out of poverty, and an increase to $10.10 would lift 900,000 people out of poverty” (Kukathas 7). Undisputedly, this minimum wage is not sufficient enough for an individual to completely afford purchasing the basic household needs. Additionally, the present minimum wage is petite to make a person manage payment of the daily basic needs. Mărginean and Alina state that 66% of the American individuals that are being paid less that the proposed minimum wage of $10 fails to have an adequate salary that would enable them to afford the living expenses (Mărginean and Alina 26).Unquestionably, the American minimum wage makes a work to face hard challenges in the attempts to meet the minimum standards of living and only fuel the poverty rates of the nation.

Raising the nation’s minimum wage will result in huge reductions in the welfare expenditure of the national government. The wage raise will make many people be able to fund their expenses in life and decrease the high dependence on the government. Economic Policy Institute states “Raising the minimum wage to $10.10 will reduce the Supplemental Nutrition Assistance Program spending by 6% and thus save 4.6 billion” (Economic Policy Institute). Kukathas also states that “the increase would save around $7.6 billion of annual government spending on income-support programs” (Kukathas 4). Thus, raise of the minimum wage will effort towards reducing the federal spending. There will be a reduction in the federal budget allocation on the assistance programs and divert its revenue to more significant factors that will drive the economic growth and develop the nation. The American nation incurs a lot of expenditure on programs like nutrition, school, and hospital bills. The increase in the minimum wage will thus curtail the government expenditure on these programs.

The gap of income inequality will be reduced with an increase in the minimum wage. Indeed, the gap that exists between the rich and the poor people is wide enough which raises the alarm to the economic policy makers. The big gap is highly contributed by the big difference between the rich and the poor. This has a negative impact on the per capita income of the country as it paints false status of the standard of living. Certainly, America faces devastating challenges arising from income inequalities. If the country increases the minimum wage, it will culminate into decreases in the income inequality. There will be a ripple impact which will increase the income level of a person who gets an income which is considerably over the minimum wage rate. Therefore, this will have a valuable impact on about 3.7 million people receiving a salary that is less than $10.10 per hour. Through this, around 35 million workers will benefit from the increase in wage decreasing the income inequalities. Kukathas notes that “increase to $10.10 per hour would raise wages for 28 million Americans–about nine million of those due to the ripple effect” (Kukathas 21). Due to the ripple effect, there will be a decrease in the income inequality level.

Conclusion

Surveys from various economic spectrum indicate that an increase in the minimum wage will have a positive impact on the economy. This controversial factor has driven many debates that are directed at addressing the aspect of raising the minimum wage. Notably, increasing the minimum wage will lead to an improvement in the standard of living which will decrease the poverty level and also the income inequality gap. Besides, the government expenditure will also reduce. Even though arguments hold that increasing the minimum wage will cause many people to be laid off from their work, this contention can be opposed as it is evidenced that the rise culminates into beneficial impacts to the economy.

Works Cited

Economic Policy Institute. Minimum wage. Washington, DC. 2016. Accessed on July 15, 2017 from http://www.epi.org/research/minimum-wage/

Kukathas, Uma. The Minimum Wage. Greenhaven Press, 2010.

Liu, Shanshan, and Thomas Hyclak. “Employment Effects Of US Minimum Wage Policy.” Zarządzanie Publiczne, no. 3(33)/2015, 2015, pp. 5-15. Uniwersytet Ekonomiczny W Krakowie – Krakow University Of Economics, doi:10.15678/zp.2015.33.3.01.

Mărginean, Silvia, and Alina Ştefania Chenic. “Effects Of Raising Minimum Wage: Theory, Evidence And Future Challenges.” Procedia Economics And Finance, vol 6, 2013, pp. 96-102. Elsevier BV, doi:10.1016/s2212-5671(13)00119-6.

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