The minimum wage

The federal minimum wage provides pay increases at different rates than inflation. As a result, many workers are economically disadvantaged. A wage raise that is too drastic, on the other hand, can have a negative influence.

The United States established the first minimum wage under the Fair Work Standards Act of 1938. According to the statute, the hourly fee was set at 25 cents (Sampson 150). Prior to that, during the Great Depression, some people who faced up to 25% unemployment became anxious for job. As a result, some firms took advantage of the situation and opted to pay low wages. Eventually, there was an establishment of the minimum wage to prevent such exploitation.

Most employers will continue paying less and less without a wage floor. As a consequence, the consumers' purchasing power will undoubtedly be destroyed in the process as they will be making less money (MaCurdy 497). Indeed, the minimum wage is helpful in mitigating the power imbalance between the low-wage workers and the employers. That rule of 1938 further went various revisions. Some of the critical reviews included a periodic raising of the minimum wage of the federal. In 2009 for instance, the federal minimum wage was set at $7.25. However, some of the cities and states took it upon themselves for raising their minimum wages with the reason of matching higher rates (Yamada 41). For example, the city of New York is considering having a minimum wage of $15 per hour by 2018.

As unions, advocates, as well as the municipalities push for higher minimum wages for reducing the poverty level, many leaders of the business push back out of fear of floundering their business when having to increase the costs of payroll. Even though wages have risen by $7 since 1938, there has been a dramatic difference in the purchasing power over time. Today, the minimum wage of federal is the same as in the 1950s when the inflation is adjusted. In 1968 when it was at its highest point, the minimum wages were about $10.90. According to the today’s advocates of the minimum wage, the current minimum wage is not sustainable. The minimum wage has eroded for so long hence making the gap to grow substantially (MaCurdy 499). It is, therefore, necessary to bring the federal wage floor up to the level that allows people to have a life that is decent and quality wherever they live.

Normally, the power of the minimum wage erodes when it fails to keep pace with the inflation. Today, the low-wage workers are more learned when compared to their counterparts of the decades ago. Besides, they are more productive than in the past. Even though the economic pie has recorded a significant expansion today, yet the low-wage workers make less than what their similar workers did many years in the past (Sampson 154). This kind of trend is the reason activist group and various unions march for legislating for higher minimum wages.

How Raising Minimum Wage Impact Economically

Theoretically, a rise in the minimum wage results in the more money in the workers’ pockets. Practically, the scenario proves to be very complex (Yamada 43). For example, in California, a minimum wage of $15 would result in increased earnings for states 38%. In effect, businesses would be seeing a rise in productivity as well as a reduction in the turnover. Possibly, a rise in prices by about 0.6% through 2023 would result in offsetting the costs of payroll. A scholar, Sampson (159) argue that setting a minimum wage at a level that is moderate does not necessarily result in a reduction of employment. Even though jobs may be cut by some employers in response to an increase in the minimum wage, others find that a wage floor that is high helps in reducing the turnover as well as filling various vacancies. Consequently, employment is raised in the process although the process eats into their profits. As has been reported by numerous research over the last ten years, the net effect of this is that when the minimum wage is set at a level that is moderate, its impacts on employment is either minimal.

Other people have different views regarding the effects of raising the minimum wage. In general, the result of raising the minimum wage vary dramatically based on the industry, location, and the quantity of the boost of wage (Yamada 46). For example, business would experience minimal harm after setting the minimum wage low and close to the costs of labor. Conversely, setting the minimum wage too high would produce significant damage to the businesses. Majority of people think that a rise in the minimum wage would be harmful to business, especially the independently owned stores that are small in size (MaCurdy 507). In a survey, the National Retail Store discovered that about 38% of small retailers are likely to face severe threats to their liability for the continuous operation under a minimum wage of fifteen dollars per hour.

Some restaurants considered adding a surge of 3% to 4% for offsetting some of these rising costs of labor that were enacted by some cities. This information was reported by the story of the Wall Street Journal that appeared in March 2017. The rise in the prices of the menu makes customers to choose items that are less expensive than they normally would. For this reason, surcharge significantly contributes to the mitigation of the increased costs involved in doing business. Though, not all businesses that are small are restaurants, for this reason, a rise in the costs of labor might force leaders of the business to minimize their staff. A minimum wage of $15 per hour when applied nationally would lead to a job lost to about 9 million people. Naturally, this scenario is not good for an economy. Most of the negative impact will be created by the lower living costs. Efforts to reduce poverty by creating jobs should not be allowed to center on forcing employers for paying higher starting wages (Sampson 159).


Minimum wage appears to impact positively on the economy. With an increase in the minimum wage, much money will be in the pockets of the workers. In effect, these workers/ employees will be provided with more purchasing power thus improving the economy. However, it should be observed/ noted that the value of the federal minimum wage is different depending on the location. Basically, the cost of living is what makes such differences in the benefits of the minimum wage. What always make more sense is the minimum wages that are set regionally.

Works Cited

MaCurdy, Thomas. "How Effective Is the Minimum Wage at Supporting the Poor?" Journal of Political Economy, vol. 123, no. 2, 2015, pp. 497-545. University of Chicago Press, doi:10.1086/679626.

Sampson, A. A. "The Minimum Wage in An Adverse Selection Economy." Oxford Economic Papers, vol. 54, no. 1, 2002, pp. 150-159. Oxford University Press (OUP), doi:10.1093/oep/54.1.150.

Yamada, Hiroyuki. "Non-Compliance with The Minimum Wage Law When Completely New Minimum Wage Laws Are Established: The Case of South Africa." African Development Review, vol. 24, no. 1, 2012, pp. 41-51. Wiley-Blackwell, doi:10.1111/j.1467-8268.2011.00304. x.

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