Minimum Wage: Pros and Cons, Effects of Increase

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Table of Contents

Introduction
Minimum Wage Law
Advantages of Minimum Wage Law
Disadvantages of Minimum Wage Law
Labor Union Laws and Efficient Wages
Conclusion
Works Cited

Introduction

This essay will explore the law regarding minimum wage in the United States of America, as well as advantages and disadvantages of increasing wage such as beneficial incentives, derailed job growth, and improved job security among others. The essay will also discuss the history of minimum wage law.

In addition, it will explain labor union laws and efficient wages. Minimum wage refers to the least possible salary that employees get from their employers depending on the agreed payment structure (Waltham 20). Employees use various payment structures to offer employees remuneration depending on amount of work done per hour, day, or month. Minimum wage is a crucial element in the labor market because it provides the lowest salary at which employees would be willing to trade their labor.

Benefits of having a limit on minimum wage include improved welfare of workers, observance of equality in recruitment, high employee morale in the workplace, as well as improved efficiency and service delivery for business and organizations (Waltham 27). However, despite these benefits, criticisms have been lodged against availability of minimum wage.

Critics, most of whom apply concepts developed in the neo-classical theory of economics, believe that minimum wage results in low employee output, increased unemployment due to inexperience, and biasness in the recruitment process. Minimum wage is an important aspect of any labor market, as it improves job standards and equality in the labor market.

Minimum Wage Law

Minimum wage law is simply a decree passed to prohibit employers from paying workers less than a specifically set amount of minimum wage (Waltham 35). At first, this law applied only to women and children, although it later extended its coverage to include the general labor force.

Violations of this law attract a fine of up to 10,000 USD, and an additional fine of 1,100 USD per extra violation (Lee 78). To understand state minimum wage law, we need to understand where the federal wages law originated. It first originated in Fair Labor Standards Act (FLSA) that President Franklin Roosevelt signed on June 25, 1938.

During that time, the minimum wage was set at a minimum of 25 cents per hour, which is equal to around 4 dollars. At first, this law only covered 38 percent of the labor force, but it continuously grew over the years, and now covers almost 85 percent of our labor force (Lee 80). Since then, revision of wage limits has happened for approximately twenty two times.

The FLSA requires employers to follow the state minimum wage law, which is usually set higher than the federal law. The current provisions under this law in the United States of America require employers to provide a minimum of $7.25 for every hour an employee offers his/her labor. These provisions have been applicable since 2009 when the last revision of the law happened.

There are various wage categories covered under this law. Student wage category covers students below the age of 18 who work during school sessions or over the holidays (Lee 88).

Another category is the home workers wage that covers individuals paid for work done from their respective homes. Others include the general minimum wage, liquor services minimum wage, as well as hunting and fishing guides minimum wage. Since 1938, the federal government has implemented minimum wage laws through the Department of Labor. The difference between federal and state minimum wage laws is that federal law applies to all fifty states, while state law is only functional in state (Lee 96).

Some states have higher minimum wage standards than the standards of federal law; others have lower or none at all. Although minimum wages have advantages such as helping workers by setting the amount of money employers should pay them, they also have negative effects such as increasing likelihood and duration of unemployment, and discouraging part time work and school attendance among others.

Advantages of Minimum Wage Law

According to economic experts, there are numerous advantages associated with availability of a provision on minimum wage in the American labor market. These benefits are universal as they cater for needs of both skilled and unskilled labor (Koshers 132). It is worth noting that minimum wage law has created an even playing ground for various job seekers who at no time feel that the remuneration received is not equal their expertise or work done.

The first benefit is that it helps families. A research done by the Economic Policy Institute in the United States of America established that close to a half of America’s working population had parental responsibilities. This meant that if there were no minimum wage laws, these workers would struggle to provide for their families because they would work for lesser wages (Koshers 139).

The second benefit of minimum wage is that it gives people unemployment incentive. This particularly applies for unskilled and unemployed workers. By possessing knowledge of the minimum wage rate, unemployed people will most likely look for jobs. They can compare the money they earn from unskilled labor to unemployment benefits in order to determine the financial incentive of working (Koshers 144).

Another benefit is that minimum wage law helps employers plan and manage their financial resources effectively. Minimum wage law makes this easier because small businesses that hire unskilled labor know the cost of paying employees before employing them. By knowing their budget requirements, they make better decisions that guarantee future financial stability. Minimum wage laws also help lessen the burden of paying taxes for employees (Koshers 150).

The federal government exempts employees on minimum wages from high taxation compared to employees on larger wage scales. Instead, most Americans on minimum wage often receive assistance from federal and state governments to supplements their little wages. This provides job security.

Disadvantages of Minimum Wage Law

The minimum wage law also has disadvantages that stem from the way it influences ability of people to access job opportunities, get into those jobs, and retain them. The disadvantages also entail ability of existing and future employers to create new jobs (Rotenberg 100).

One of the disadvantages is increased levels of unemployment. The concept of supply and demand best explains this. In a highly competitive market where demand for labor is high, low wages discourage people from accepting jobs that offer low remuneration, thus causing unemployment.

The second disadvantage is that it promotes emergence and growth of black labor markets. This means that some firms can dodge the law and offer workers less that the federal minimum wage, as the supply of labor becomes too high (Rotenberg 109). The third disadvantage is that it heightens poverty levels of people on minimum wage.

If a household has one individual earning the minimum wage, there is a high likelihood that the household will forever live below the poverty line. There is always a feeling of complacency whenever people get into employment without considering their income and their daily needs (Rotenberg 116). In addition, putting limits on minimum wage that Americans can receive does not increase the income of poor Americans who have to continue dealing with the same financial responsibilities as before.

Labor Union Laws and Efficient Wages

Labor union laws and minimum wage laws have contributed a lot to the current trend of structural unemployment in the United States of America. This explains the development of the concept of efficient wages (Thomas par 8). Efficient wages entail setting employee remuneration above average wage in order to strike balance between supply and demand for labor. This concept applies based on concepts of the efficiency wage theory.

First, there is increased employee productivity due to good remuneration. Secondly, there is improved employee retention rates, thus reducing cost of operation mainly brought about by regular employee recruitment and employee training (Thomas par 10). When an employer provides wages above average market levels, employees often find it hard to consider other job offers since there is no guarantee of such an attractive remuneration package.

The third benefit involves an increase in quality and depth of skill in the workforce. One of the things that is likely to attract highly competent and skilled individuals to an organization is a solid remuneration package. This often provides a competitive edge for an organization when it comes to sourcing talent and skills in the job market (Thomas par 11).

However, it is important to note that providing employee remuneration above the equilibrium does not mean the same as increasing the minimum wage. Increasing the minimum wage always results in mixed outcomes.

When the minimum wage is increased, the income of people in employment escalates (Thomas par 3). At the same time, an increase in minimum wage is a disadvantage to people providing unskilled labor because the cost of hiring increases, thus reducing the number of individuals hired. Therefore, increasing minimum wage in the United States of America will definitely lead to increase in rate of unemployment, since the cost of hiring will increase leading to reduced demand for labor (Thomas par 3).

Conclusion

Minimum wage refers to the least possible salary that employees get from their employers depending on the agreed payment structure. Employees use various payment structures that involve employees receiving remuneration depending on amount of work done per hour, day, or month. Minimum wage law is simply a decree passed to prohibit employers from paying workers less than the set amount of minimum wage.

The difference between federal and state minimum wage laws is that federal law applies to all the fifty states, while state law is only applicable to one state. Some states have higher minimum wage standards than the standards of federal law; others have lower standards or none at all. Increasing the minimum wage in the United States of America will definitely lead to increase in rate of unemployment, since the cost of hiring will increase leading to reduced demand for labor.

Works Cited

Koshers, Marvin. The Effects of the Minimum Wage on Employment. New York: Cengage Learning, 2004. Print.

Lee, Kenneth. Minimum Wage Laws and Administration: The Widening Gap. New York: John Wiley & Sons, 2010. Print.

Rotenberg, Simon. The Economics of Legal Minimum Wages. California: American Enterprise Institute for Public Policy Research, 2009. Print.

Thomas, Mark. Does Raising the Minimum Wage Really Help Workers?. 2013. Web.

Waltham, Jerold. The Politics of Minimum Wage. New York: Cambridge University Press, 2000. Print.

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