This presentation will provide an outline of the minimum wage and its potential influence on employment. The paper will also discuss briefly the outcome of the prior study's lowest wage. This article makes a conclusion that raising the minimum wage to $15 is likely to lead to a tradeoff and no matter how positive the move is it will come at a price in the form of loss of job and an increase in benefits for some individuals. As cities across the globe debating on whether to establish their minimum wage policies, the economists and lawmakers are the other hand are understandably asking the host numerous questions. What does research state about the impact of minimum wage on employment? How are the current laws designed and in particular how will the economy behave under the current laws to set a minimum wage? This paper will address these questions.
In summary, minimum tends to raise the minimum wage of the low wage worker and families and the costs that minimum wage adds up are absorbed by organizations either through price increases and reduction in the turnover costs. The existing researchers were limited to the range of minimum wage that has been implemented up to now. While these researchers have been suggestive, they have failed to explain what is likely to occur when the minimum wage is raised to $15 which is far beyond the general, state and local mandates. Currently, the labor economists continue to have debates on the actual impact of minimum hours and wage. This paper will this offer a non-technical explanation of the nature of disagreement that arises in the research literature.
Introduction
Minimum wage refers to the laws and regulations restriction on the lowest pay that employees receive. In the United States, for instance, the minimum wage was initially focused on children and women and was later on extended to cater for the general workforce. The lawmakers set up this minimum wage law with the intention of addressing the issues of workers who earn the lowest pay to enable them to earn an income that can sustain their life and that of the family. The policy maker recognizes the importance of setting up low wages to make sure that workers are not exploited or unfairly compensated for the work they do. Minimum wages play a vital role because they not only increase the purchasing power of the low-income earners but also reduces income inequality that exists between the wealthy and the have-nots. The primary reason for enacting minimum wage legislations is to raise the standards of living for the low-income earners (Cunningham, 2007).
In the United States, one of the principal reasons for raising the minimum wage is the impact it has on the welfare recipients. Any slight increase in minimum wage acts a monetary incentive that will attract more labor force in the labor market. With low minimum wage, people may tend to find welfare more attractive to be more relevant and even interesting than working for the low poverty incomes and having other benefits and medical being taken away. This situation does not, however, arise in developing countries which do not have any policies to provide welfare payments to those people who are unemployed. By raising minimum wage rate to $15 will mean that people live above the poverty line, thereby expanding their level of consumption and bond with government assistance will be shattered (Flinn, 2010).
Background of Minimum Wage Issue
The national minimum wage was introduced in America in 1938 by the then President Franklin Delano Roosevelt. By then the minimum wage was set at 0.25 dollars in every hour. From that time the Congress has increased the minimum wage 22 times, the latest one was in 2009 when the government reviewed the legislations to increase the minimum wage from 6.5 dollars to 7.25 dollars in each hour. The districts of Columbia and 29 states have set their minimum wage slightly above the rate set by the state. The main reason why these some states have higher minimum wage than others is because the argument that $7.25 is far too low for anyone to leave on; that the declining minimum wage is the leading cause of income inequality between middle and low-income earners; that a higher income wage will help grow the economy and create more jobs; and that many of Americans, who include the slim majority of the majority of self-described conservatives advocate for a rise in the lowest pay (Whaples, 2007).
In the 1990s a living wage movement was established. This movement was to campaign for better wages that are at a level where people who have full-time jobs have enough income to sustain themselves and their families without the need to rely on assistant programs or welfare assistance. In the 114 congresses Bernie Sanders introduced a living wage legislation that was to ensure employees received a better pay.
Those who oppose minimum wage increase move argue that businesses that won’t be able to pay workers at this new rate will have to stop hiring, lay off workers or will be forced to close; that increases in the minimum income makes it difficult for the inexperienced work no or little work experience to become upwardly mobile or to find a job and that any attempt to raise the wage to $15 does not take into account the costs of living in the communities (World Bank Blogs, 2017).
Economic Impacts of Minimum Wage
The major problem that needs to be considered when setting the minimum wage is the predicament of unemployment. Some people will automatically become unemployed as a result of the minimum wage rise. If an organization were to keep the wages of all employees above the minimum wage, then the overheads would rise, and the cost of some employees could increase beyond the marginal revenue. That implies that the expense of workers that are paid higher than the minimum wage could be greater than the marginal contribution of sales, so that firing employees could increase profits and hiring them could reduce profit. When the costs rise given a constant revenue implies that economic profit which is the total difference revenue and the total cost will also decline. That will mean that the in the long run resources will shift from the less employment incentive sectors and investments will become less profitable in all sectors. A country with a higher minimum wage will be less attractive to foreign and local firms will also opt to migrate to overseas countries that do not have minimal wage policies. To recover and maintain sustainability in countries with minimum wage policy then companies have no option but to lay off workers or reduce the working hours of those who are employed (DeSilver and DeSilver, 2017).
Economists from all over the world have reached a consensus that minimum wage increases will in the long run result into a tradeoff and no matter how good the legislation intended it always comes at a price, in the form of increased benefits especially those who are better off because they have jobs and lost jobs for others. Economists make a conclusion that when the minimum wage is raised the less skilled and poor are often forced out of the workforce.
Societal Problems Associated with Minimum Wage
The minimum wage provides a better ground for both economists and politicians to discuss the cons and pros associated with this controversial law. In the United States, all employers have to follow the federal minimums wage regulations.
Setting minimal wages reduces the training opportunities. The minimum wage laws tend to pool low income into an affectedly high floor eliminating any opportunity for them to advance in trade or job or learn new skills. The logic behind this argument is that, if low-wage employees are pooled into a uniform wage bracket, those employees who want to develop will fail to receive the crucial training because those people who have not received the training will already be working.
The minimum wages tends to negatively affect a person’s willingness to work when labor is deducted from the employment benefit. From an economical point of view the more unemployment benefits that any organization offers, the incentive there are to work. In effect, a person works for the difference between relief and potential wage. Minimum wages can also lead to unemployment. Having a minimum wage implies that cheap labor will be eradicated out of the market a factor that will lead to unemployment. Unemployment can also arise from the fact that costs of production will increasing meaning profits decline, such a situation forces individual firms to shut of lay off the excess employees.
In the United States, the level of income inequality is pretty high and rising over the decades. This rise of inequality is an indication that people are falling to low, the minimum wage role is meant to provide a floor upon which no person of a family can fall. But that is not always the case on the ground because people do not always have jobs. If the main reason why the minimum wage is initiated is to fight the widening inequality, then it is a miscalculated move because tax policies that address this form of bias have to be present.
The significant setting of minimum wages can lead companies into dangers of financial situations. Smaller business may face increasing ways across the board. The minimum wage brings lower-level or unskilled employees’ salaries closer to the pay for people with expert and technical abilities. Such a move can demoralize the trained employees and make the unskilled one comfortable and unwilling to advance and seek knowledge and companies that are unable to raise wages to that point might be facing bankruptcy of even liquidation.
Minimum Wage Worker Statistics
In the United States, a total of 77.2 million workers who were above the age of sixteen years were paid on hourly basis. 72 million workers primarily represent 58.7 % of all salary and wage workers. 1. 3 million of individuals who were paid on hourly basis earned the exact current minimum wage of 7.25 dollars in each hour. About 1.7 million people were paid earnings that fell below the prevailing federal minimum. Those workers who were reported to be earning below the prevailing federal minimum wage might not have been covered by the state or federal laws because of the exemption or exclusion in the statutes. Therefore the presence of workers with minimal wages below the national level does not indicate a violation of the statutes standard (Data.worldbank.org, 2017)).
The federal minimum wage has remained constant at 7.25 dollars since 2009 prompting the organized anti-poverty and labor groups to continue to push for increase in the hourly rate to 15 dollars. From the research that was carried out by Pew Research Centre indicated that 52% of the people were of the view that federal minimum wage should be increased to $15 per hour.
The studies that were conducted by the University of Michigan State revealed an interesting scenario in this trend. It concludes that a rise in the minimum wage tend to displace skilled young people of the labor force from the market, while the older individuals who are highly qualified and skilled are also employed. This displacement arises from the fact that companies only want efficient employees so as to cut on the cost of employing extra employees. In 2009 after the after the raising the minimum wage per hour to $7.25 per hour many youths became jobless (The impact of minimum wage increases in American Samoa and the Commonwealth of the Northern Mariana Islands, 2012).
Raising the Minimal Wage Rate to $15
The prominent Congress members have made proposals on raising the minimal age from the current $7.25 per hour to $15 per hour. The fifteen percent minimum wage increase won’t result in job losses as claimed. In fact, it could put more money in the pockets of low-income earners thereby giving their family and the economy a boost. The situation won’t be different from what occurred in the past years when the minimum wages were raised, for example in 1996 when the minimum wage was adjusted upwards, people predicted that millions of jobs could be lost; the outcome was, however, different because there were so many jobs created than in any comparable American history.
A 15% rise in the minimum wage is unlikely to lead to higher prices because of many businesses because many organizations that are affected by it are in stiff competition and therefore they will take the rise out of profit rather that attempting to raise the prices of goods and services. The higher minimum wage will also attract many workers into the market that implies that employers will have many choices of whom to hire resulting into productivity and lower turnover costs.
Consumer demand is what leads to job creation, but not poverty wages and super profits. When workers have more money, they will spend it on the generation of new job avenues and stimulate the local economy. From the past every time the proposal to is brought to increase the minimum wage the corporate media is fond of coming up with theories that stating that it will kill jobs and also wreck the economy. The corporate media fails to analyses the biggest minimum wage the 1990-1991 which did not result in job losses. The lowest income has even been elevated a couple of time, and none of these situations have seen the light of the day (PACHECO, 2011).
The 15% will boost the economy; working people invest in the economy while businesses tend to suck out of it. More money in the pockets of workers will imply that more money will be spent in the economy instead of huge profits being moved to casinos on the Wall Street. As a country, we need 15 dollars as a step forward towards building our economy and creating jobs. The United States has some of the biggest and wealthiest corporations doing businesses globally. Why should workers, on the other hand, remain in poverty while corporations such as Boeing are raking billions of profits?
The human services in our country have been grossly underfunded, and their self-sacrificing workers continue to receive little pay. We net to tax big corporations reverse such a situation and dedicate all the effort to fund nonprofit making organizations. In the recently, it can be seen that the low-wage workers are more educated than before yet the economy is devastatingly creative low wage jobs. A college degree is no longer a ticket to get out of poverty; it is more often a ticket for paying the students debts. A 15% is enough to lift 100000 workers into better living standards.
Statistical Data
This statistic shows the minimum wage are as portrayed by different states as per January 2017. Some states, however, do not have minimum wage laws; they include Tennessee, South Carolina, Mississippi, Louisiana, and Alabama. Several states had $7.5 as the minimum wage which is the central least wage. The Columbian districts have the utmost minimum wage rate which stands at $11.5 each hour (Data.worldbank.org, 2017).
From the above data, it can be seen that minimum wage increases are quite significant. Four states Ohio, Missouri, Florida and Alaska are increasing the minimum wage by just $0.05 in each hour. While two states South Dakota and Montana have seen a 0.10 dollar increase in an hour. The increases are caused by various economic factors that include inflation and the rise in the general cost of living. There is a link between the consumer price index and the minimum pay and different states use this relationship to calculate rate by which to increase the lowest pay. Some of the states are however making huge escalations in the lowest wage. Arizona, for instance, has seen the biggest boost with an increase in minimum wage by $1.95 in a single hour (Data.worldbank.org, 2017).
An increase in the wages to 15 dollars will not be a new thing but rather a continuation of what the states have been doing. A 15 dollars increase will have numerous benefits to the economy. First, it will serve as an economic stimulus. Raising minimum wage will mean that people have more money to spend which infers that more money will ripple into the economy because workers will be able to afford more (The impact of minimum wage increases in American Samoa and the Commonwealth of the Northern Mariana Islands, 2012).
The government will also reduce the social program; these employees surviving in the low paying jobs are in many cases individuals who depend on the government support programs so as to sustain their families and themselves. Expanding the minimum wage will mean that people will be able to take care of their needs without much reliance on the government support programs. Therefore the funds can be channeled to other ways. Raising a minimum wage can also decrease worker turnover which can significantly help organization new employees training costs. Employees earning high salary will feel more contented or pleased. This implies that there will be reduced turnover (Providing for the consideration of H.R. 3081, the Wage and Economic Growth Act of 1999, and H.R. 3846, a bill to increase the minimum wage, 2000)
Cons Associated with 15 Dollar Minimum Wage
This move can result in layoffs. If the employer has a tight budget and budget is adjusted upwards, it implies that they do not manage to compensate employees and they must, therefore, make layoffs. An employer may also be forced to raise the prices of their products so as to continue sustaining these expensive budgets. This might trigger a chain of economic crisis resulting in increased costs of living a factor that will make the government to furthermore raise the wages. The competition will intensify, the more qualified people will be vying for those minimum wage positions, which will push inexperienced people and young people out of business (Kosters, 1996).
Conclusion
In considering the question of whether there should be a statutory increase in minimum wage to 15 dollars both long-term and short-term implication needs to be considered. There are indeed short term arguments that support the minimum wage, but the long-term questions should be on whether in the long run, the economy will not suffer because of such a move. From the available evidence, it is clear that a slight increase in the minimum for the low-income earners has little effect on the rate of employment. Therefore if the government aims at stimulating the economy, the rise in minimal wage is a way to go. In other words, the minimum wage can be a useful tool when coordinating the governmental policy with the intention of achieving a particular outcome.
References
Cunningham, W. (2007). Minimum wages and social policy. 1st ed. Washington, D.C.: World Bank.
Data.worldbank.org. (2017). United States | Data. [online] Available at: http://data.worldbank.org/country/united-states [Accessed 11 Mar. 2017].
DeSilver, D. and DeSilver, D. (2017). 5 facts about the minimum wage. [online] Pew Research Center. Available at: http://www.pewresearch.org/fact-tank/2017/01/04/5-facts-about-the-minimum-wage/ [Accessed 11 Mar. 2017].
Flinn, C. (2010). The minimum wage and labor market outcomes. 1st ed. Cambridge, Mass.: MIT Press.
Kosters, M. (1996). The effects of the minimum wage on employment. 1st ed. Washington, D.C.: AEI Press.
PACHECO, G. (2011). Estimating Employment Impacts with Binding Minimum Wage Constraints. Economic Record, 87(279), pp.587-602.
Providing for the consideration of H.R. 3081, the Wage and Economic Growth Act of 1999, and H.R. 3846, a bill to increase the minimum wage. (2000). 1st ed. [Washington, D.C.]: [U.S. G.P.O.].
The impact of minimum wage increases in American Samoa and the Commonwealth of the Northern Mariana Islands. (2012). 1st ed. Washington: U.S. G.P.O.
Whaples, R. (2007). Modern economic issues. 1st ed. Chantilly, VA: Teaching Co.
World Bank Blogs. (2017). Minimum Wage. [online] Available at: http://blogs.worldbank.org/category/tags/minimum-wage [Accessed 11 Mar. 2017].
Appendix I
Minimums wages in USA states (Data worldbank, 2017)
2016
2017
Alaska
$9.75
$9.80
Arizona
$8.05
$10
Arkansas
$8
$8.50
California
$10
$10.50
Colorado
$8.31
$9.30
Connecticut
$9.60
$10.10
Florida
$8.05
$8.10
Hawaii
$8.50
$9.25
Maine
$7.50
$9
Maryland
$8.75
$9.25
Massachusetts
$10
$11
Michigan
$8.50
$8.90
Missouri
$7.65
$7.70
Montana
$8.05
$8.15
New Jersey
$8.38
$8.44
New York
$9
$9.70
Ohio
$8.10
$8.15
Oregon
$9.75
$10.25
South Dakota
$8.55
$8.65
Vermont
$9.60
$10
Washington
$9.47
$11
