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Strengths and Weaknesses of the Minimum Wage Increase
The minimum wage increase has been an ongoing conversation among almost everyone which it should be because it is a very important topic. Increasing the minimum wage has seen many pros and cons. Many people are unaware of what the words minimum wage even mean, and that is the lowest amount of pay that an employer is allowed to pay their employees by law. On October 1st, 2017 minimum wage in Ontario was $11.60 and in January 2018 minimum wage in Ontario went up to $14.00 per hour, this was a $2.40 rise. When this happened, many employers dealt with the downfall; and now again we want it to go up yet again. It may only just be $1.00 but it will affect many people’s lives negatively. Employers get negatively affected by the increases in the minimum wage because it results in their payroll expenses going up as well. As a solution to this issue hey will begin to lay off employees. Moreover, employees face the biggest cons of the increase because they will have to pay a lot more in taxes which will decrease their income.
Increasing the minimum wage may seem like a good idea when you just look at it as plain as that: increasing how much we get paid. We never really look at it past that fact; which is why many of our opinions on the topic stand where they do. I have come to the conclusion that increasing the minimum wage will not benefit us. Increasing the minimum wage will increase inflation due to the fact that people will be making more money so the prices of goods and services will go up as well. Unemployment would rise due to the fact that business will want to hire people who are more skilled or have more experience compared to the employees they have and were usually hire.
In order to fully understand how minimum wage affects our society we need to look at where it all started – Fair Labor Standards Act. In 1932 the act was drawn up by Senator Hugo Black where it required employers to have a 30-hour workweek, as a result, there was a lot of push back (Perez, 2015). A big push that came for the act was in 1936 when President Frederick D. Roosevelt was in New Bedford, Massachusetts and a little girl explained to him that her working conditions were getting worse and her pay got cut down from $11.00 to almost $4.00 per week (Perez, 2015). Moving forward just 6 years later a newly changed act was approved for 8 hours days and 40 hours week and on top of that if employees worked 44 hours they would get paid for overtime (Perez, 2015). The act made the minimum wage $0.25 per hour and since then it has gone up about 22 times (Perez, 2015). The act covers more than just the minimum wage aspect of employment; it also touches on children under the age of 18 are not permitted to work dangerous jobs such as mining or manufacturing (Perez, 2015). On the other hand, the act does not look out for seasonal employees, executives, and some other employees (Perez, 2015).
One of the reasons Canada adapted minimum wage was because of this act and the government saw how many benefits came from it (Derry et. al, 1922). In order to put an end to the exploitation of women and children, Canada brought in minimum wage (Derry et. al 1922). When it first came to Canada people were either for the minimum wage or against it. Those who were for it thought that it would improve workers living standard and reduce poverty and inequality. Those who were against it argued that it would get rid of jobs and increase poverty with those who were lacking skills (Derry et. al, 1922). All across Canada, the minimum wage laws are very different. For instance, in 1917 Alberta passed a law that stated no person working in a factory, office building, or shop would be making any less than $1.50 per shift; this was adapted from Utah and Arkansas where they had very similar laws (Derry et. al, 1922). On the other hand, when looking at Manitoba we see that in 1919 they passed a law that restaurant and office workers had to make a weekly minimum of $12.50 (Derry et. al, 1922).
Moving on, looking at the positive effects of the minimum wage increase. Starting off with the increase in productivity when the minimum wage goes up as well. Studies done by leading economists have shown that when minimum wage increases the morale and work ethic of the staff when they truly believe that they are getting paid a fair wage (Hon, 2014). Many economists have claimed that when employees get paid more it results in better physical and mental health and reduced tiredness, which all in all makes for higher productivity (Hon, 2014). According to a research paper done by economists saw that when employees are making more there is a lower chance of them missing work which results in higher productivity (Bucila 2010). Taking Amazon as an example they raised how much they were paying their employees to $15 and saw big growth in how productive their employees were. The reason behind this was because no one wants to lose a job that pays them more then what minimum wage is right now; therefore, they work harder than they need to in order to keep their jobs (Bellemare 2009). Looking at the psychology aspect of increasing productivity it has been suggested that employees’ attitudes, satisfaction, and behaviors influence the way they work (Kim et, al. 2019). It is also seen that with better pay, training, and job security would make employees a lot more satisfied which results in them working harder and increasing productivity (Kim et, al. 2019).
Low wages play a major role in poverty and health inequality. Therefore, if the minimum wage was increased inequality would be decreased (Dube et, al. 2007). The Canadian Institute for Health Information came out with a report in 2015 stating that labor market policies such as minimum wage was a big poverty reduction strategy that would reduce health inequality (Lenhart et. al, 2017). It has been shown in multiple different studies that people with lower incomes have worse health outcomes for instance, higher rates of chronic disease and lower life expectancies (Lenhart et. al, 2017). One province that is dealing with this issue the most is British Columbia due to the fact that employment income largely determines whether a family is able to avoid poverty and have the right tools to avoid poor health (Lenhart et. al, 2017). These conditions are known as social determinants of health and when someone has a higher social position, they will have better health based on their circumstances and goods and services they have access to (Lenhart et. al, 2017). According to a research report done by the Provincial Health Services Authority, it was confirmed that low-income British Columbians are at a much greater risk of suffering from chronic diseases in comparison to citizens who make much more (Lenhart et, al. 2017). The Health Officers Council of British Columbia found that in 2008 there was a large number of deprived people which included the unemployed and working poor who all had lower levels of health than the average citizen (Lenhart et, al. 2017). Going forward just 5 years they updated their statement by speaking about how the differences in life expectancy between the poor and wealthy had become much larger which means that the health gap has not stopped winding (Lenhart et, al. 2017).
Furthermore, increasing the minimum wage not only has benefits but also drawbacks. These drawbacks include increasing both unemployment and inflation. A recent study done by the Federal Labor Standards Review showed that if there was about a 10% increase in minimum wage will reduce employment by 0-3% (Kerr, 2008). It has also been seen that in many minimum wage studies, little to none have shown positive employment effects (Kerr, 2008). Moving on, if the minimum wage is increased it is more likely that many young workers and less skilled workers will lose their jobs (Lammam et, al. 2018). When the minimum wage gets increased employers to respond by reducing the number of employees or cut down the number of hours worked. Many low-paying jobs such as wholesale and retail trade saw a lot of unemployment in the past year when the minimum wage went up to $14.00, around 50,000 people across the country lost their jobs in this sector for the first half of the year (Lammam et, al. 2018).
In addition, not only will unemployment increase but inflation will become more prominent. In 2017, when minimum wage went up to $11.40 CPI (consumer price index) inflation was boosted as well in 2018 (Brouillette et, al. 2017). The report predicted that if the minimum wage were to go up even more in 2019 that inflation will go up 0.2 percentage point in comparison to the 0.1 percentage point it went up in 2018 (Brouillette et, al. 2017). An example that was used was when McDonald’s employees asked for a wage of $15 in 2017 which would mean they would make around $30,000 a year (Brouillette et, al. 2017). Most employees at McDonald’s are teenagers and teenagers making $30,000 a year is more than some adults, and teenagers don’t have many responsibilities (Brouillette et, al. 2017). As a result, the money they make will be going to goods and services which increases inflation. Increasing inflation as a response to increasing minimum wages is called wage-push inflation (Machlup, 1960). In order to make a profit after an increase in wages, employers must raise the prices they are charging for their goods and services (Machlup, 1960). It has been seen that inflation and minimum wage increasing go hand in hand. This is because when inflation goes even higher up, higher wages are needed in order to satisfy this (Machlup, 1960).
All in all, after looking at both sides of the argument I understand the benefits and drawbacks of increasing the minimum wage. Increasing the minimum wage has been said to increase productivity in many different industries of work (Bucila, 2010) as long as the employees are satisfied and are happy with their work (Hon, 2014). On the other hand, some industries work cannot be measured, therefore that productivity is unable to be seen. In addition, employee satisfaction is not something that can be easily seen. Increasing the minimum wage gives an opportunity to people who usually do not make as much to close the gap between them and wealthier people in many ways, for instance, health-wise (Lenhart et. al, 2017). Moreover, as the minimum wage increases the prices of these goods and services that people need health wise will go up as well. Therefore, people who do not make as much will be at a disadvantage once again. When looking at the drawbacks of increasing minimum wage the unemployment rate for low-skilled workers becomes very high (Lammam et, al. 2018); yet those workers are the ones who have seen the most benefits from previous increases minimum wage in previous years (Neumark, 2015). With minimum wage going up it causes inflation to go higher as well (Brouillette et, al. 2017). On the other hand, increasing the minimum wage is not the only reason why inflation increases. Inflation has been prominent in our economy for many years even when the minimum wage was at a low. Therefore, we are unable to put all the blame on increasing minimum wage for the reason of inflation (Haberler 1960). Other reasons for inflation to begin to rising include: import prices, raw material prices and declining productivity (Haberler 1960).
In conclusion, increasing the minimum wage has many strengths and weaknesses. To begin, it allows for the productivity of employees to go up due to the fact that they do not want to lose their well-paying jobs. In addition, increasing the minimum wage allows the poor to close the gap between them and the richer ones. On the other hand, increasing the minimum wage causes a lot of unemployment in teenagers and low-skilled worked because employers do not want to pay someone who has little to no experience. Furthermore, increasing the minimum wage allows for the prices of goods and services to go up as well which results in inflation. In my opinion, increasing the minimum wage always seems like the best thing that could happen for us as a society because we are getting more money to spend, but there is much more to just that. I strongly believe that increasing the minimum wage will hurt us more than anything. The reason for this is that many people will become unemployed due to employers not wanting to pay so many people. On top of that, inflation will drastically increase because people will begin to make a lot more money and as a result, the prices of goods and services will go up with it.
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