Impact of the Implementation of the Minimum Wage on Poverty Rate

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Impact of the Implementation of the Minimum Wage on Poverty Rate

Minimum wage is defined as the fixed wage controlled by the government, which makes the minimum wage can’t go below it.

Arguments in Favor of the Minimum Wage

The standard of living of the lower working class rose, and so did the average social standard of living.
Stimulate consumption. More money could be allocated to lower-paid workers who run out of pay, thereby increasing the flow of money.
Has a positive impact on SMEs’ income (as customers’ income increases).
Eliminate low-paid jobs and force workers to train and move to higher-paying jobs.
Promoting the development of science and technology. As labor costs rise, high-tech industries become more attractive. encourage automation and efficiency in industry.

Arguments Against the Minimum Wage

The minimum wage, by itself, is not effective in alleviating poverty; in fact, it exacerbates it by leading to unemployment.
To reduce the demand for work, to reduce the number of working hours or positions. Lead to more long-term unemployment.
Measures to eradicate poverty are less effective than others (such as resistance to earned income tax deductions) and hurt business more.
It hurts small and medium-sized enterprises more than it hurts big ones.
That leads to higher commodity prices when those goods are made by low-income workers. this could lead to higher prices as businesses try to compensate for labor costs by raising commodity prices.

In the report I will discuss the effect of the minimum wage in different countries of developing country and developed country.

India

The congress party’s vision of a direct transfer of benefits, Nyuntam Aay Yojana (NYAY), is expected to give India’s 50 million poorest families 72,000 rupees a year in direct transfers to female family members. According to the congress party’s own estimates, the total cost of the program will be less than 1% of GDP in the first year and less than 2% in the second, and will fall as India’s nominal GDP grows and the number of households lifted out of poverty grows.

However, in the country like India, the purpose of doing this is to woo its voters. I think it will not only fail to reduce poverty, but also promote the increase of ‘pseudo-poverty’ population and bring about serious corruption problem. If included in the poorest population 50 million maximum critical value of N, the lowest critical value of M, the qi for relief after it is 7200 M + N + 7200, the income within the range of N ~ N + 7200 population would think if their income can decrease to a little less than N, in the case of relief can reduce a lot of labor and income unchanged even increased. As a result, a considerable part of the population in the range of N~N+7200 will actively seek to reduce their income and prefer to get something for nothing, thus increasing the ‘pseudo-poor population’. In this case, the expansion of the government’s relief scale will affect the finance, and the failure to expand the scale will aggravate the dumbbell structure of social wealth distribution. On the other hand, due to the serious corruption in India itself, from ancient times to the present, the process of identifying the poor population and the transfer of funds from a large amount of funds to a large number of people in a short period of time will bring a lot of rent-seeking opportunities to relevant personnel and aggravate the corruption problem. In China, such as Wenchuan disaster relief project corruption is shocking, not to mention other similar projects. So, in the country like India, the only method for them is to increase the employment rate.

America

Higher labor costs reduce employment. That’s why President Clinton’s plan to raise the federal minimum wage should not be accepted, because it would further reduce employment opportunities for low-skilled workers. President Clinton has proposed raising the minimum wage to $5.15 an hour. In fact, hourly wages are often lower than that for teenagers, high school dropouts, immigrants and other low-skilled workers. They find jobs in smaller stores, especially fast-food chains and other retail outlets. If the President raises the minimum wage, as he wants, some people will lose their jobs because employers will think they are less productive and not worth the money. Over the past few decades, numerous studies have confirmed that raising the minimum wage does reduce job opportunities for teenagers and other low-skilled workers. But the minimum wage law has been a hot topic among some unions and politicians. At the same time, some economists occasionally question the possible negative effects of raising the minimum wage.

In July 1988 California’s minimum wage rose from $3.35 to $4.25. In the previous year, 11% of California workers and fully one-half of its teenage workers earned less than the new state minimum. The state-specific nature of the California increase provides a valuable opportunity to study the effects of minimum wage legislation. As in a conventional non-experimental program evaluation, labor market trends in other states can be used to infer what would have happened in California in the absence of the law. Drawing on published labor market statistics and microdata samples from the Current Population Survey, I apply this strategy to estimate the effects of the rise in the minimum wage on various groups and industries in the state. Special attention is paid to teenage workers and employees in retail trade. The results are striking. The increase in the minimum raised wages of teenagers and other low wage workers by 5-1%. Contrary to conventional predictions, however, the employment rate of teenage workers rose, while their school enrollment rate fell.

Canada

Also, in the country like Canada the minimum wage will have relatively the same impact. The impact of a rise in the minimum wage will vary across industries. After controlling for other variables, for industries with low threshold, sufficient labor supply, near-perfect competition in the labor market and relatively low incomes, such as catering industry and day care, the increase of the hourly minimum wage leads to a decline in the real weekly income because the weekly working hours are shortened. For relatively high-income industries and monopolistic sectors, increases in the minimum wage have increased weekly real earnings. The impact of the minimum wage increase on the provinces varies. After controlling for other variables, workers in provinces with abundant labor supply were more affected. For example, when the minimum wage in the catering industry was raised, the weekly earnings of workers in Ontario (where labor is abundant) fell much more sharply than in Alberta (where labor is relatively scarce). In fact, the rise in the minimum wage in the catering industry did not significantly reduce the weekly earnings of workers in Alberta.”

So, in conclusion, the minimum wage will relatively have a positive impact on the developed country.

China

By July 2019, Beijing, Shanghai, Chongqing and Shaanxi had adjusted their minimum wage standards for 2019. The minimum wage in Shanghai, Beijing, Guangdong, Tianjin, Jiangsu and Zhejiang exceeded 2,000 yuan, with Shanghai’s monthly minimum wage of 2,480 yuan being the highest in China.

Minimum wage standard generally adopts monthly minimum wage standard, hourly minimum wage standard two forms. Among them, monthly minimum wage standard applies to full-time employment laborer, hour minimum wage standard applies to part-time employment laborer. The salary paid by the employing unit shall not be lower than the prescribed minimum wage standard. As the monthly minimum wage is raised, the salary base of some office workers will be increased.

According to the Ministry of Labor of the People’s Republic of China, Article 59 provides: the worker is sickly or be not because of the job is wounded during treatment, be inside formulary medical treatment period by the enterprise pays its sickly pay or disease relief cost by concerned regulation, sickly pay or disease relief cost can be below local minimum wage standard pay, but cannot be below minimum wage standard 80%.

According to the labor law of the People’s Republic of China, provided for in Article 57, after laborer and unit of choose and employ persons to form or establish labor relations, during the trial, skilled, trainee, inside legal working hours provided normal work, its place unit ought to pay the wages of not less than the minimum wage standard. After minimum wage standard rises, the probation salary that gets by minimum wage standard also will rise.

The payment standard of unemployment benefits is: the unit that unemployed personnel is in before unemployment and oneself accumulative total pay cost is full 1 year is less than 10 years, press minimum wage standard 70% pay, full 10 years and above of, press minimum work standard 80% pay. It can be seen that the rise of the minimum wage directly affects the amount of unemployment insurance.

The four effects on China shows, that China government rises the minimum wage while in the same time does other things to make the market less distorted which shows the advantages of the effect of powerful market control on the whole country. So, we can conclude, the impletion of minimum wages will have the least negative effect on the China.

Conclusion

In the country like China where the government has high control power on the market, the minimum wage will have a better impact on the poverty rate rather than free market country like India and USA. Also, developed country like USA and Canada the minimum wage will have a less negative impact on the people than the developing country like China and India.