A minimum wage is the lowest level of hourly wage rates as established by the law. For example, the minimum wage rate for the United States in 2017 was $7.25, meaning that it is unlawful for any organization or institution to pay workers less than $7.25 per hour (U.S. Department of Labor, 2017). The states also set their minimum wages, but they should not be below the federal minimum wage. For instance, the wage rates for California, Florida and Texas are $11, $8.25 and $7.25 respectively. The minimum wage is raised from time to time; in 1938, the rate was $0.25 per hour and it is expected to rise above the current rate to at least $10 in the coming years. However, minimum wage increase does not always reflect the inflation rates, leading to a decline in value of wages over the years. The minimum wage may also have little impact on employment and unemployment rates. This paper will address the problem of minimum wage by exploring the potential effects of raising the minimum wage, and how the problem can be solved to boost the economy while promoting social welfare.
Literature Review
Researchers have explored various ideas, options and solutions to the minimum wage problem. Ashta (2012) suggests that the minimum wage legislations are based on the model of income redistribution to ensure that surplus in the economy is redistributed to all members of the community through higher wages. The author uses the simplistic political game model in which a group member is assumed to be having all the power, and desiring everything for himself or herself at the expense of others. In this regard, the increase in minimum wage ensures that redistribution takes place, but the model does not necessarily decrease inequalities in the economy. Nonetheless, redistribution through minimum wage increases the purchasing power of low-income earners, leading to improved welfare.
Marginean and Chenic (2013) also suggests that minimum wage does not have a significant effect on employment and unemployment, but it has positive effects on other factors of the economy including austerity and budgetary effects. However, Quinn and Cahill (2017) suggest that the increase in minimum wage leads to a decrease in employment levels due to increased costs of inputs. Because minimum wage is an issue of income and social policy, so it does not significantly affect the real economy. However, the policy is effective in providing social protection and promoting people’s social welfare, enhancing fairness and equity, eradicating poverty, and improving people’s living standards.
Solutions to the Problem
One of the solutions for the problem of minimum wage is to develop an effective management plan through legal backing, collaboration with relevant stakeholders, and creation of effective teams to implement the policy. There should be sufficient laws to provide legal backing for the minimum wage increase. With a widely accepted law on the minimum wage, the increases on minimum wage will be widely accepted by all parties, and employees and employers will be equally satisfied. Dialogue and collaboration is also required among various stakeholders because minimum wage increase is a social policy which needs support from all sectors of the economy (Quinn and Cahill, 2017). There should be wide consultations and community involvement to ensure that the interests of all parties are considered, leading to effective outcomes. The involvement of social partners in the design and implementation of minimum wage increase enhances positive impact on people and communities. Organized consultations and meetings should be held to discuss the effectiveness and designs of the minimum wage.
Conclusion and Policy Implications
The minimum wage has significant effects on the levels of poverty and living standards of workers in the country. However, lack of proper implementation may not affect the economy because minimum wage increase may not reflect inflation rates in the economy. Minimum wage is a social policy that affects social issues such as poverty, welfare and living standards. Therefore, consultation, community involvement, and collaboration may be required when implementing minimum wage increase to improve the policy impact on communities.
References
Ashta, A. (2012). A minimum wage solution to halving world poverty by 2015: A stakeholder approach. IIMB Management Review, 25(1), 6-18.
Marginean, S. and Chenic, A.S. (2013). Effects of Raising Minimum Wage: Theory, Evidence and Future Challenges. Economics and Finance, 6, 96-102
Quinn, J.E. and Cahill, K.E. (2017). The Relative Effectiveness of the Minimum Wage and the Earned Income Tax Credit as Anti-Poverty Tools. Religions, 8(69), 1-17.
U.S. Department of Labor (2017). Minimum Wage. [Online] Accessed from https://www.dol.gov/general/topic/wages/minimumwage.
