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Topic: Should the Minimum Wage be Increased, Why or Why Not?
Introduction
The recession of 2008, left the world in a state of despair and the resulting domino effect’s marks can still be seen in the US market. The unemployment rate increased with the collapse of Lehman Brothers, and the poverty levels or the rate of people living below sub-par levels has significantly increased. In order to address this rising concern, policy makers at all levels of the government, i.e. state, federal, and local have begun looking for solutions.
One of the solutions that has been considered and debated upon is increasing the minimum wage of the workers, so that things and life can improve for them. There are many people who are in favor of this decision and actually support it, however, this decision may do more harm than good, as it puts greater pressure on businesses to perform, while increasing the need for more qualified and highly educated individuals.
In the fair Labor Standards Act (FLSA) 1983, the congress instituted the minimum wage for the working class. 经济影响论文代写
However, in the United States of America, the local and state governments have the right to set their own level of minimum wage. Therefore, the minimum wage rates for each jurisdiction differ as per the standards set by the local and state government. Led by Washington State at $9.32 per hour, Oregon at $9.10 per hour and Vermont at $8.73 per hour, 21 states and the District of Columbia have a minimum wage rate higher than the federal wage rate of $7.25 per hour (The State Factor, 2014).
Twenty of the states have wage rates as set by the federal government, whereas, the nine states that are left have minimum wage rates lower than the rest of the states, but the employers in these regions are required to pay higher rate to the federal government. 95.3% of the hourly paid employees earned less than the minimum wage set by the federal government in the year 2012.
The question then arises would raising the minimum wage be helpful for the employees or will it harm them in the longer run? 经济影响论文代写
Certainly, the people who are already employed are likely to get the benefit out of this more, than those who are unemployed. Additionally, companies will face a hard time meeting the increased requirement for paying higher wages to the employees, especially when the production costs are high and the consumers buying power is limited.
At the same time, even if the prices of the products are increased, then the consumption levels are sure to be affected, which will hurt the sales of the companies, in turn making it difficult for them to pay their employees, and thus, resulting in termination of many employees. And so, the cycle will continue, with the less educated, less experienced, and under privileged suffering far more than the employed, educated ones.
While there is a lot of evidence that increasing the minimum wage actually ends up hurting the very people it is supposed and intended to help 经济影响论文代写
Many advocates and representatives at the local, federal, and state levels demand for an increase in the minimum wage levels. President Barack Obama raised the minimum wage for all federal contractors to $10.10 per hour and called on Congress to raise the federal minimum wage for all employed people; advocates in states as diverse as Alaska, Idaho, Massachusetts, Maryland and South Dakota have lobbied for an increase to state wage rates; and surrogates for fast-food and retail workers have staged strikes to demand as much as $15 per hour (The State Factor, 2014). Small businesses cannot afford to pay their employees a minimum wage of this level, or if they do, then the number of people they hire significantly decreases.
Let’s look at the effects of raising the minimum wage level on the employees, the organizations, and the consumers.
The Effect of Minimum Wage on Organizations 经济影响论文代写
There are a couple of repercussions that the businesses are likely to face when the minimum wage increases, some of which have been discussed a little in the above mentioned paragraphs. However, there is a lot that can happen due to the implementation of this decision. As described above as well, when the minimum wage increases, the cost per labor increases for the employees, which increases the production cost, and thus the employer has to pass it off on to the consumer, but adding it in the price of the product or by increasing the prices. This, in turn increases the inflation rate as prices increase as well, thus the consumers have to pay for it then. However, many employers improve the processes so that their production costs remain low, while being able to bear the increased wage rates for their employees.
On the other hand, there are many other employers who work towards maintaining a stagnant level of improvement for all levels of employees, and thus implement structural changes that actually benefit both the employees and the organization. Still others, give higher increments to lower level employees and provide lower level increments to the top level employees so that a balance can be maintained, and thus prevent this cost form being passed down to the consumer. However, it must be understood that employees who earn the minimum wage, lack the necessary skills to demand higher pay and are considered to be less productive, which is why they are paid so. Many of the supporters of minimum wage increase are under the impression that while businesses have the capabilities and the resources to pay higher wages, they willingly decide not to do so, because they are capital centric and like to pay the labor less just for their own benefit. 经济影响论文代写
Many believe that the most these businesses will experience is a dent in their pockets, i.e. a slight decrease in the profits they earn instead of actually faces losses due to this decision. According to an analysis by the Employment Policies Institute, roughly half of the minimum wage workforce is employed at businesses with fewer than 100 employees, and 40 percent work at businesses with fewer than 50 employees (EPI). Due to the nature of the business, many organizations are simply unable to afford higher quality workforce because their demand for pay is higher. It must be understood that the market is become fiercely competitive with each passing day and thus, it becomes difficult for businesses to remain afloat. Sustaining the business while maintaining a specific level of profit is quite difficult and for many of the small businesses, it becomes a huge challenge to overcome these issues. In such an intensely competitive era, many organizations actually work on levels where they earn little to no profits, just so they can survive.
On the other hand, larger organizations have their own fair share of troubles 经济影响论文代写
They are required by their shareholders and other stakeholders to keep the costs low. This means, that these organizations have to make way for the increase in the minimum wage while at the same time ensuring that they are able to charter unchartered waters. In the previous year, the California chapter of the National Federation of Independent Business (NFIB) projected the potential negative effects of the state’s 2013 legislation that raises California’s minimum wage rate to $9 per hour in 2014 and again to $10 by 2016 (The State Factor).
If the wage rate is increased as per the stated plans, then it is expected to impact the economy of the state of California negatively by shrinking it to $5.7 billion in the coming decade. This would lead to a reduction of approximately 68,000 jobs, 63% of which may very likely be from small businesses. A higher percentage of the workforce is employed in the SMEs (small and medium sized enterprises) sector. The bottom line: somebody needs to be pay for the increased minimum wages, and it becomes difficult for the small and medium sized enterprises to survive if the minimum wage increases, as they employ a larger portion of the workforce.
At the same time 经济影响论文代写
this results in greater unemployment, as it basically makes the companies decide how to cut costs in order to meet the increasing demands of the employees. When companies are given the task of determining how to cut costs to remain efficient, most of the times they come up with the solution to let the employees who earn higher wages go, if their work can be carried out by an employee who is working on lower wage rates. However, while the fact that raising the minimum wage actually increases the unemployment rate is true, many researchers have studied this question in order to ascertain the authenticity of it all. One of the studies conducted on this question, yielded results that stated that an increase in the level of the minimum wage decreases the employment levels within the country.
One review by economists David Neumark and William Wascher shows that 63 percent of studies found relatively consistent evidence of negative employment effects on minimum wages (The State Affair, ECI). Taking up a recent study as well, which assessed the effects of increasing the minimum from $7.25 to $10 in California, is likely to result in the job loss of 300,000 people. This indicates that within the next 10 years, 300,000 people will be unemployed and the situation will be worse than before. On the other hand, organizations have already started switching to other options that limit the use of labor, thereby, ensuring that the costs associated with labor reduce. Automation is one of the most widely used methods why which employers are limiting the use of labor.
Another very common method of reducing the costs associated with labor is outsourcing.
Companies, with the aim of reducing their production costs, outsource their services or their operations to those countries where the labor is considered to be cheaper. This way, they save up millions on labor costs, and are also able to deliver highly competitive priced products to their consumers. More and more companies have begun either outsourcing their operations to other countries, mostly third world countries, or they have begun going global and opening their services or their manufacturing operations in such regions were the cost of labor is low.
This shift of the employers towards cost saving methods is proof that if the minimum wage rate continues to rise, then the rate of unemployment is likely to rise. One of the most common examples of automation replacing the labor force is that of ATM machines, which have reduced the need for Bank tellers and clerks. With the creation of the smartphone, this has become even easier, as more and more people go online to take care of their daily matters, such as making payments, buying online products, and transferring cash to each other. I wouldn’t be surprised if within the next two decades, digital currency became the norm.
Even if employers decide not to decrease the hiring process 经济影响论文代写
They will respond to higher labor costs by replacing the lowest-skilled individuals with more highly-skilled employees, which prices inexperienced workers out of the market. Further, the higher pay attracts more affluent individuals to enter the low-wage labor market, such as teenagers from well-off families or adults looking to provide a secondary income to their households (The State Affair). If that happens that the opportunities available to all become limited and thus, the fight for jobs becomes even more intense. Highly qualified people start opting for jobs with lower pay just to make ends meet which in turn creates problems for the low skilled and less learned. The number of people in looking for job is much higher than the jobs available in the market, and this surplus creates difficulty for those people to find jobs who need it the most.
According to testimony provided by James Sherk of the Heritage Foundation 经济影响论文代写
After minimum wage levels increase, businesses employ more teenagers living in affluent zip codes and fewer teenagers from lower-income zip codes (The State Affair). The primary reason is because they have a strong base and good learning, along with the fact that they also have access to good network through their family relations. The positive side to the increase in the minimum wage is that it tends to attract higher number of teenagers to the foray, however, the benefits end at that. When the cycle is viewed together then it can be understood that the repercussions of this increase are far greater than the benefits earned from it. Additionally, another thing that attracts most of the teenagers to jobs is the fact that they will receive on job training rather than the pay in itself.
The Effect of Minimum Wage on Consumers 经济影响论文代写
As discussed earlier, many companies try to pass on the effects of the increased wage to the consumer in the form of higher prices. As the prices increase, and this increase persists, the level of inflation also increases, thereby, making the overall economy a more difficult place to live in. Employers often cannot fully absorb the costs of an increased mandated wage rate by cutting their workforce because they need that labor to successfully run their businesses (EPI). According to the economist Daniel Aaronson, calls the effect of passing on the costs associated with production on to the consumer as “price pass- through”.
It is quite commonly noticed that an increase in the minimum wage levels of the employees actually leads to an increase in prices, in particularly of food items. Using data from the Consumer Price Index (CPI) from 1995 to 1997, the economists examined 7,500 food items (usually a complete meal) from 1,000 different establishments in 88 different geographic areas (The State Affair). It was noticed that the price increase was apparent within restaurants especially in high service restaurants. These consist of those restaurants where the customers take the meal to go, instead of actually dining in. Life has become quite demanding for people these days, and it has become a habit for many people to eat on the go. Such restaurants are likelier to hire employees with low wages. However, while the wages for a permanent employees are clear, those of the part time employers remain a question mark for many. The wages level for part timers have still not been decided yet, which makes it even more difficult for people looking for permanent jobs to find a good job opportunity.
Those employees who had low wages on the other hand stand to gain a lot by the increase in minimum wage. 经济影响论文代写
However, as mentioned previously, the party that stands to gain by this step is limited, and majority of the people for whom this benefit is intended is not even able to gain these benefits because of lack of opportunities available to them. Additionally, non-minimum wage earners will face higher prices without the corresponding increase in wages. Thus, they will likely cut back spending to compensate (The State Affair). When the behavioral shift happens, then the employee is likely to look for substitute products as well, since they would now want cheaper alternatives just to ensure that the consumption of the products does not end. This too, affects the companies negatively, as many of the brands lose the consumer base which they previously had, thereby, putting them in financial trouble as well. While the financial trouble may not be too big, nonetheless, it will be there.
Daniel Aaronson and Eric French predicted a $25 billion drop in spending from those earning above minimum wage if the minimum wage was increased from $7.25 to $9.00 per hour (The State Affair). On the other hand, it is important to note that the spending power of the people will increase, as the economy and the society sees a rise in the middle class, with more people growing in order to improve their lifestyles. However, the spending power, versus the actual spending rises only during the short term, however, the GDP is expected to increase in the longer run.
The Scale Effect 经济影响论文代写
According to conventional economic analysis, increasing the minimum wage reduces employment in two ways. As discussed previously, higher wages result in an increase in the cost that employers incur during the production of goods and services. The employers pass some of those increased costs on to consumers, as has been discussed in detail in the next section, in the form of higher prices, which, in turn, lead to the consumers purchasing fewer of the goods and services. As the number of products that are produced decreases due to reduced demand, then the employers reduce the requirement for employees which in turn leads to hiring of fewer workers. That is known as a scale effect, and it reduces employment among both low-wage workers and higher-wage workers. At times, due to the increase in wages, higher wage earners are let go so that a low wage earner can be made to do their work as well, which significantly affects the job security being provided.
Substitution Effect 经济影响论文代写
An increase in the minimum-wage raises the cost associated with low wage workers in comparison to other inputs, such as the cost of raw materials, maintenance of the machinery etc. that employers use to produce goods and services, along with more productive higher-wage workers. Some employers respond to this by reducing the number of low-wage workers they hire and shift towards improving the utilization of other inputs, most even move towards automation as has been discussed. That is known as a substitution effect, and it significantly reduces employment among low-wage workers but increases it among those workers earning higher-wages since employers require more skilled workforce that is efficient and productive in its output as well.
Conclusion 经济影响论文代写
To conclude I would like to begin with my understanding of the situation. If the minimum wage level increases, then its impact on the employment opportunities available, along with the employers’ willingness to accept this decisions by increasing the cost is quite adverse. The proponents of the minimum wage increase believe that by implementing this policy, things will improve in the United States of America. The reason for this is because they do not see the full picture, and the effect of this decision on the overall economy.
Even though the intention is to keep the least fortunate away from falling into the depths of poverty, this can only be carried out when there are a good number of jobs in the market. Recent studies have shown that there is little to no relationship between increases in the minimum wage and reductions in poverty, for, in order to bring about this change, there are many other things that need to be implemented as well. Very few people are actually expected to truly gain a benefit out of this, when in reality, the consequences of this decision will do more harm than good.
The unemployment rates are likely to increase, as companies try to cut costs in order to remain competitive. 经济影响论文代写
On the other hand, businesses face troubles as well, since they have to maintain a certain cost of production which, if increased, will have to be borne by either the company or the consumers. In case the company decides to bear it, then the likelihood of cutting down the labor force is quite high, whereas, if the company decides to pass it on to the consumers the prices will increase, which will increase the inflation in the economy.
What needs to be done is that the government needs to come up with solutions for this problem, especially that of addressing the limited job opportunities available in the market. Economists Joseph Sabia and Richard Burkhauser found that workers living in households below the poverty line received few of the benefits of past minimum wage increases, however, these are all short lived (The State Affair).
In order to address this increasing issue 经济影响论文代写
The government needs to take proactive measures in order to create more jobs in the market, that not only offer opportunities for growth, but also offers ways to improve the skill set of the employees. This would ensure that a higher level of teenagers are skilled enough to work, and thus, tech incubators can be opened up with the aim of helping others build on their ideas and improve their lives. It should also be understood that a long term solution needs to be derived for the situation, i.e. addressing the issue of poverty, instead of just increasing the minimum wage rate, which might yield results in the short run, but will only lead to more problems in the longer run.
A recent Congressional Budget Office (CBO) report examining the proposed federal minimum wage increase to $10.10 by 2016 found that, although the proposal would move approximately 900,000 people above the poverty threshold (of the estimated 45 million currently below that threshold), just 19 percent of the increased earnings would go to families below the poverty line (The State Affair). All of this needs to be taken into consideration, so that the issue can be addressed. The problem for the people of America is not that the wages are low, but that there are low or no jobs in the market.
Public policy needs to be more focused on providing state of the art facilities for students so that they can equip themselves with the necessary skills, required to not only survive, but remain successful in the market. 经济影响论文代写
With increasing competition, the focus on many people has shifted to increasing the minimum wage levels in order to secure the future of individuals, however, as a collective society the bigger picture cannot be ignored. For small businesses, implementing the increased price becomes a huge problem, whereas, for the larger organizations it might not even matter.
The only drawback is that most of the organizations are small and medium sized enterprises, which actually result in the employment of a larger population, than the large organizations. Therefore, all of this needs to be taken into account before any policy changes can be made. The various effects of this decisions have been discussed in detail throughout this essay which makes us rethink the effectiveness of a minimum wage increase. While minimum wage will be beneficial, what needs to be understood is its consequences and how those can be overcome, and such measures need to be implemented which offset the above stated outcomes.
To conclude, I would just like to say that raising the minimum wage level of the employees is not a wise decision, nor a beneficial one as it will only lead to the creation of more problems. It should also be understood, that the picture cannot be viewed in seclusion, it needs to be seen as a whole in order to understand the linking effects it is likely to have. Therefore, the minimum wage levels should not be increased, instead more focus should be on providing ample job opportunities to the people of America so that they can lead a better life.
References 经济影响论文代写
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Sherk, James and John Ligon. “Unprecedented Minimum-Wage Hike Would Hurt Jobs and the Economy.” Heritage Foundation. Issue Brief 4102. Available: http:// www.heritage.org/research/reports/2013/12/unprecedented-minimum-wage-hike-would-hurt-jobs-and-the-economy#_ftnref11.
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