Minimum wage is a common economic principle that influences and impacts social and individual are government policies. The term can be defined as, “the lowest level of earnings for employees set by a government. Many nations across the world have adopted a minimum wage policy to ensure can maintain a minimum quality of life. Over time many nations have seen both positive and negative effects from this policy. The minimum wage concept has been around for a very long time. The first signs of this approach can be dated back to 1894 in New Zealand, according to the Organization for Economic Cooperation and Development.
This theory was introduced to the United States in 1938 in response to the Great Depression and offered workers a guarantee on the minimum amount of hourly wage for the work they performed. The purpose of this approach was to help governments ensure all citizens were provided a basic standard of life and to help governments improve their citizens position with regards to the income brackets. As a result, instead of many countries have having a large amount of underpaid workers or high poverty rates, the minimum wage laws seeks to offer a level of economic equality.
Minimum wage laws have forced companies to pay individuals equally, regardless of sex, race or, creed. The minimum wage approach also effects price control and has essentially offered governments the ability to control and set a minimum price on various goods and services. The positions minimum wage is usually associated to require basic skills or nontechnical skilled workers and often allows companies and small businesses the ability to avoid offering employment benefits.
Another benefit this approach offers companies is the ability to employ more part-time individuals and potentially avoid paying overtime. This has produced two schools of thought and a healthy debate on the benefits of minimum wage. On one side, many economists will argue that from a supply standpoint, wages can place a large burden on small businesses, yet on the other side, wages set to low result in increased rates of poverty. In my paper, I will discuss minimum wages from microeconomic standpoint and how increases will produce negative effects.
The minimum wage theory as it relates to business, employment rates, and individuals. My research will also outline problems the minimum wage theory has presented for such entity’s outlined above and the impacts it has imposes to work incentive. This research will also identify the pros and a con this approach has had on our society and its positive and negative contributions. The purpose of this paper is to also argue that increases in this program would result in more harm to the country’s economic position than good.
Over time minimum wage from a microeconomic standpoint has offered both positive and negative impacts on families, individual workers, business, and local economies. In a free market where price controls are implemented, the theory of supply and demand can become distorted. When a commodity is in high demand, the price generally goes up. On the other side, when an item is in low demand the price goes down. This theory is inherited by business and the bases for their production decisions. When consumer demand increases, companies must react and increase their production to meet this demand.
Problems with this theory are usually seen when price controls force set forth government requires companies to pay higher prices for items such as labor then they are actually worth. Also, when a particular item is not in demand, according to the supply and demand, an increase is not warranted. Over time, when increases in minimum wages are imposed on companies they tend give up additional labor. From a consumer standpoint, minimum wage impacts overall prices. When businesses are unwilling to absorb increases, the additional cost is added to the good and services they offer.
Theoretically it starts a chain of events where product price increase to offset the wage increase. This eventually decreases consumers buying power and the value of their dollar, which causes many to reevaluate, reduce or avoid purchasing items. Many argue that minimum wage helps reduce poverty rates and one would think that increases in minimum wage would have positive impacts on and lower its levels. However, based on research conducted by the Heritage Foundation, minimal benefits have been produced from increases.
According to their research, only twenty five percent of minimum wage earners work fulltime and do not necessarily rely on this income to increase their overall standard of living. These facts conclude that increases do not directly have a positive impact on overall poverty levels. Another inherent challenge identified by the U. S. Department of Labor Wage and Hour Division, stems from each state having its own ability to set forth laws on minimum wage. Although a federal minimum wage is set, the individual states can choose to use the federal wage or make their own laws.
States such as Washington and Illinois choose to go above the federal minimum, and states such as Alabama and Louisiana choose not to have a minimum wage at all. This causes the minimum amount to vary greatly, making minimum wage an opportunity for some and a lost opportunity or others. This inconsistency among the states in minimum wage laws can keep some workers living below the poverty line while others are able to provide for themselves. Generally, businesses that mostly rely on a large amount of unskilled labor tend to be greatly impacted from this theory when minimum wages are increased.
Increases eliminate a companies’ ability to negotiate wages for their lowered paid employees. From 2007 to 2009, according to the Department of Labor, minimum wage has increased approximately twenty four percent. In cases where businesses employ of majority of individuals at this level, such drastic increases can have detrimental impacts of their overall profit margin. This essentially results in an increase in overall expenses and a reduction in economic growth. Also, a majority of companies look at minimum wage as a very large expense for a pool of workers who are in fact very unskilled.
As a result of the high expense they tend to limit or cut back on hiring in the long run. According to the Employment Policy Institute, because minimum wage jobs are generally targeted towards young people entering the workforce, when there is a ten percent increase in the minimum amount we see a five to nine percent decrease in youth employment. Also, according to the Wall Street Journal, higher minimum wages typically causes higher unemployment. Most companies would and small businesses would rather hire more experienced workers in the long run.
As a result, many regions are faced with a large amount of individuals with little experience who are unable to find a suitable job. Typically trends like this pose an overall negative effect on the region and cause increases in homelessness, poverty and crime rates. From an individual standpoint, the minimum wage theory initially offers clear benefits to workers that are both low and high wage earners, but can have major implications over time. When we experience an increase in the overall minimum wage amount we not only see an increase in under skilled workers salary but also an increase all wages and discretionary income.
But over time, although positive effects are initially felt, this tends to lead many companies down a road looking to cheaper work pools offshore and/or investments in their technology with regards to automation with a goal of reducing workforce and expense. This ultimately reduces the number of jobs being offered. Some other negative effects seen at an individual level relate to taxes. In a nation that consists of a very progressive income tax system, increases to wages require most to pay more in taxes. When wages are increased some potentially could be pushed into a higher tax bracket.
When we examine the impacts minimum wages on individuals with regards to minority groups, this approach provides a considerable amount of harm to them, when in essence this program was established to help them. Reason being, low productivity workers tend to belong to minority groups mainly because of their differences in education, culture and motivation. In comparison, research shows that white youth typically out produce minority youth and employers are more likely to hire them when they are denied the options to pay particular employee that tend to be less productive and smaller wage.
Also, typically when wages rise, more workers enter the job market which effects minority opportunity. Employers are given a larger pool of individuals that are more highly skilled, higher quality and produce higher production rates. When seeing these benefits, some employers may even go as far as increasing wages and reducing their overall number of minimum wage earners. There are certainly pros and cons to this approach. On one side, higher wages may increase incentives, but more work may decrease quality which produces a difficult balancing act for employers.
Although many negative results can be attributed to minimum wages, positive outcomes have been a result of this law. The Economic Policy Institute for economic research located in Washington, D. C. , concluded in a 1999 study that almost 40 percent of the countries wage earners in the United States happen to be working parents. Of that amount, nearly 33 percent of the minimum wage earners are married couples raising children. Without a minimum wage, these workers may be forced to work for less.
Where some argue increases in the minimum wage amounts could have negative impact on the overall economy, others argue that it could help millions of people who are at the minimum wage or below poverty or just above. Typically an increase of only a few thousand dollars a year would not lift a person or a family out of poverty, but it would ease the struggle to pay for food, rent or child care. With a reasonable minimum wage, individuals could make steps towards the goal of reducing poverty. In the long run this could produce positive outcomes such as better education for future generations and broader health coverage for individuals.
Also, a minimum wage offers an incentive for unskilled and unemployed workers to find employment. Poverty puts a burden on a national economy as the government is forced to try and assist those who cannot find work. A minimum wage ensures that low-skilled workers will be paid a guaranteed minimum and encourages them to find work and provide for themselves. A strong minimum wage could also help reduce the gap in incomes between the poor and the wealthy in America. When gaps in income levels become too wide, our democratic values are threatened.
Typically freedoms such as voting, being vocal on public issues, and having the basic ability to enjoy a stable and open society tend to be not as meaningful for those who are worn out by struggles for the basics of life It can also be argued that it offers and employment incentive. Thus, a minimum wage gives an unemployed person incentive to take a job because he knows what his minimum pay will be, according to economics website Economics Help. An unemployed person can compare the money he gets from public assistance to the minimum wage to determine the financial incentive of taking a job.
This also leads to an overall reduction tax burden many Americans face. A person making at least minimum wage are more likely not to use as many public services as someone on unemployment. An unemployed worker is given welfare, rent assistance and food stamps in many states. With minimum wage, the need for public assistance is lowered and this reduces the tax burden on the community and the state This also offers low-wage workers the ability to spend more at local businesses and rely less on local social service agencies for assistance.
The changes help build the local tax base and reduce the spending of local taxes on social assistance programs. Minimum wage also provides job security during a weak economy. Workers with minimum wage jobs benefit because they tend to be at the lower end of the pay scale, according to in the SmartMoney article: Winners and Losers of the Minimum Wage Hikes. We also see part-time workers making minimum wage are often offered a full-time opportunity, which also tend to help save an employer the cost of hiring and training new employees.
From a business perspective, without a minimum wage, it would is difficult for small businesses to budget their money. With a minimum wage in place, a small business owner knows what they will be expected to pay per hour and he can create new jobs with their company based on this budgeting information. The minimum wage also makes the hiring process easier for young or unskilled workers and employers. When the worker knows upfront what kind of wage they can expect, and the employer does not have to go through the process of negotiating a wage with a new employee.
In conclusion, raising the federal minimum wage is a bad idea. Today, according to George Will of the Washington Post, most of the working poor earn more than the minimum wage, and of that percentage, workers earning the minimum wage are not poor. We see that one in five workers earning the federal minimum lives in families with earnings below the poverty line whereas, sixty percent work part time, and their average household income is well over $40,000. A staggering forty percent of American workers are salaried and of the 75. million paid by the hour, only 1. 9 million earn the federal minimum or less.
Based off of these figures, more than half are under 25 and more than a quarter are between ages 16 and 19 who consist of students or other part-time workers. Will also notes, two-thirds of those currently earning the federal minimum today will most likely be promoted within a year resulting in earnings 10 percent higher. Raising the minimum wage also tends to make work more attractive when compared to school for many teenagers and has negative impacts on dropout rates.
The goal of price controls like the minimum wage standard should essentially offer us the ability to repeat the law of supply and demand. Disrupting the equilibrium of Labor markets causes economic damage. The concept that increasing the federal minimum wage will push up real wages is false. Average pay in America has been increasing steadily in recent years, despite the fact that the minimum wage has not changed since 1997. Real wages rise when productivity rises. Labor productivity has gained 26 percent since 1997, and real earnings for non-supervisory workers are up 7 percent.
Non-wage benefits are up as well especially regarding returns to risk-taking entrepreneurs. The credit for these gains goes entirely to the workforce and American business, not to micromanagement from Washington, D. C. The overall problem is that demand for almost everything is elastic. When the price of something goes up, demand for it goes down. If the minimum wage was to increase we would see a large increase in overall unemployment. Raising the minimum wage will hurt low-income workers, cost jobs, and negativity the American economy. Congress should know by now that messing with the laws of Economics does not work.
Courtney from Study Moose
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