Living on a minimum wage is one of the most challenging experiences because it is always associated with constant needs and disparities. The fact that families cross the poverty threshold does not guarantee that they have enough financial resources and can afford decent living or satisfy all their needs. In this case, people feel no support from the state and legal protection, realizing that their welfare is in their own hands. What I learned from this experience is that living on a minimum wage is synonymous with financial insecurity and instability (Barusch, 2015).
One of the primary findings is that the minimum wage is not a living wage. It is closely related to opportunities to buy the minimum necessary food products and medications as well as affordable housing and schooling services. However, it is synonymous with minimum living because every time an individual wants to purchase additional goods or go out, finding resources for financing this decision is close to impossible due to constantly limited available funds and being forced to think of unplanned expenses. That said, living on minimum wage assaults human dignity and is far from welfare because it does not offer opportunities for securing life, such as renting or buying a house or an apartment with enough space for all family members, affording health insurance, and adequate care for children, especially healthcare and educational services (Kotval, Kotval-K, Machemer, & Mullin, 2012).
Moreover, minimum living has a direct influence on the quality of life and the ability to enhance the personal development of both the parents and children. First of all, those who work are forced to seek additional sources of income to cover the required expenses and make up a contingency budget. That is why they do not have enough time for developing new skills and obtaining new knowledge, thus becoming trapped in an inescapable cycle. Low-skilled workers are forced to remain in this category for the rest of their lives (Nguyen, 2013). Furthermore, it is related to the long-term negative impact on employees’ health because adequate healthcare is unaffordable. Also, low-wage positions are often characterized by dangerous workplaces that ignore minimum health protection requirements (Leicht, 2010). This means that low-wage employees work under constantly increased risks of health concerns.
Another matter of concern is the fact that minimum living affects children and their prospects in life. For example, childcare in Florida costs around $25,000 per year (State child care facts in the state of Florida, 2016). This figure is calculated for three children. If a family earns $30,000 per year, it does not have enough financial resources to provide children with adequate care and schooling. That is why parents are forced to seek help from their relatives and give preference to home care and education, depend upon loans or find additional sources of income, sometimes illegal. In any case, children either feel the lack of communication with parents or do not obtain enough knowledge and skills, thus becoming forced to follow their parents’ life path as low-wage workers.
To sum up, living on minimum wage is associated with inadequate satisfaction of basic human needs such as shelter, health care, nutrition, education, communication, and personal development (McGuire, 2010). The rationale behind this statement is the fact that minimum wage is not realistic and does not incorporate decent living but is instead focused on meeting minimum needs, denying the ability to achieve an adequate work-life balance.
References
Barusch, A. S. (2015). Foundations of social policy: Social justice in human perspective. Belmont, CA: Cengage.
Kotval, Z., Kotval-K, Z., Machemer, P., & Mullin, J. (2012). A living wage standard: A case study of the US Virgin Islands. Local Economy, 27(5-6), 541-557.
Leicht, K. T. (2010). Nickels and Dimes won’t fix this: The future of work and pay in America. Work and Occupations, 37(2), 225-233.
McGuire, J. M. (2010). Decentralization for satisfying basic needs: An economic guide for policymakers. Charlotte, NC: Information Age Publishing.
Nguyen, C. V. (2013). The impact of minimum wages on employment of low-wage workers. Economics of Transition, 21(3), 583-613.
Increasing the Canadian minimum wage involves many issues. The research focuses on the necessity to increase the Canadian minimum wage. The research focuses on the advantages of increasing the minimum wage law. The current economic crisis has forced many companies to reduce operating expenses, including wage increases.
Wage Increase Should not be Implemented
The minimum wage should not be increased. First, increasing the Canadian employees’ daily minimum wage per se may be disastrous to the Canadian community, the Canadian company, and especially the Canadian employees affected by the salary increase. The many Canadian companies will not be able to profitably implement the new round of minimum salary increases.
Increasing the salaries will entail the reduction of the company’s profits. The increase in salaries will translate to an increase in the total administrative expenses. The increase in the per day take home pay of the employee equates to an increase in the company’s marketing expenses.
The increase in the Canadian employees’ wage rates will trigger an increase in the Canadian company’s interest expense. Interest expense is the amount paid for borrowing additional funds to pay for the increase in the employees’ minimum.
The United States economic depression currently affects the Canadian business environment. Many companies in the United States have closed shop because of the economic depression. Stephen Slavin[1] emphasized. The economic depression is characterised by the increase in the prices of basic goods and services. In turn, the increase in the prices of goods and services will result to the decrease in the company’s profits.
The continuing economic depression dragged many United States companies into the quagmire of unprofitability. Consequently, the United States companies were forced to file for bankruptcy. The bankruptcy state of many companies drove many of the American employees into the unemployment lines. Many Canadian companies export their finished products into the United States.
The current United States economic depression translates to a decline in the American people’s demand for the Canadian goods and services. A decline in the demand for Canadian goods and services would create an unfavorable timing for the Canadian employees’ salary increase.
Increasing the employee’s minimum take home pay will force many organisations to lessen the hiring of new workers. The increase in the salaries of the Canadian workers will force management to reduce some of its avoidable expenses.
Labor cost is one of the major variable labor expenses. A reduction of the labor expenses will translate to an offsetting increase of the Canadian companies’ net profit data. The rise in the minimum wage will surely force some companies to retrench some is employees. Usually, the managers will prefer to retrench temporary employees.
Next, the managers are forced to retrench employees assigned to redundant jobs. Specifically, management is forced to retrench in the production department during times of slow demand. The redundant employees will idle around because the decline in the demand for the Canadian company’s products will create a situation where the production quantity has declined significantly.
The rise in the minimum wage will reduce the current statistics in terms of applying for new jobs. The rise in the minimum wage will cause many Canadian companies to reduce their demand for new workers. As discussed above, the decline in the demand for the Canadian company’s products will cause many companies to reduce its demand for new workers. In times of economic depression, Canadian companies must tighten their economic belts to ride the tide of economic constraints.
The companies will have to reduce some of its variable expenses as well as fixed expenses in order to continue its current business until the economic depression fades away from the Canadian business community. The Canadian company can start opening its doors to new job applicants when the business wheel rolls faster than its current economic status.
The rise in the minimum wage will increase the unemployment ratio. The rise in the minimum wage will cause the retrenched employees to join the ranks of the unemployed. The lines of the unemployed will increase in length. The lines of the unemployed will double or even quadruple during times of economic difficulty. This is what is actually happening in the United States.
Many of the retrenched employees apply for jobs in other companies within the 50 states of the North American nation. However, the current economic depression forces the companies to close its human resource recruitment doors from the entry of new job applicants. The new job applicants will not be given the slimmest chance of being hired by the economically depressed companies.
Jonathan Wadsworth[2] opined the rise in the minimum wage will force many companies to increase their selling prices. The rise in the minimum wage will force companies to recover the rise in the minimum wage. The best way to recuperate the increase in the minimum wage is to pass on the difference between the current daily wage rate and the new daily wage rate to the companies’ clients.
Consequently, many of the clients are forced to reduce their want, need, or intention to buy the company’s products and services. The rise in the Canadian company’s selling prices will trigger a domino effect on the prices of other affected goods and services.
The rise in the minimum wage forces some companies to close down. A Canadian company that generates revenues that are lesser than the total amount of operating expenses shows an unfavorable picture of the company. The operating expenses include the both the marketing expenses and the administrative expenses.
The administrative expenses include the total expenses spent to pay for the office and other activities not related to the selling or marketing activities. The marketing expenses include the total amount paid to advertise the company’s products and services.
The rise in the minimum wage will trigger outsourcing. Outsourcing occurs when the Canadian companies hire another company from a third world country like India and China to perform the services of the Canadian employees. The most popular outsourcing jobs include call center services.
Here, the telephone operators located in the third world countries answer the phone calls of Canadian callers. Some of the Canadian clients will sense the phone operator speaks in unfamiliar or second language voice. The call center agent, usually stationed in India, is trained to answer the calls from the Canadian caller.
The Indian call center operator looks on a dashboard of possible answers to each question being thrown by the Canadian caller. In short, the Indian call center operator speaks in monotonous or repetitive terms.
Instead, the Canadian companies should be left on their own to increase or decrease their employees’ wages. This is the very essence of the laissez Faire economy. The companies are left on their own to decide when to increase the employees’ salaries. The companies may increase the salaries of their employees if the company’s finances will favorably call for such decision.
Some companies are encouraged to increase their employees’ salaries if the company generates a net profit. On the other hand, the companies generating a net loss are discouraged to increase their salaries.
As proof, many Canadian companies increased their wages to amounts that are higher than the prescribed minimum wage. Mr. Francis MacPhail3 emphasized the 1980s Canadian workplace was characterized as the employment and labour union activities; strong discussion of the current situation where the salaries are paid at different wage levels or rates. The wage levels are based on the company’s capacity to pay the wagers.
The wage levels are based on the worker’s job responsibility. In other companies, the wage levels are pegged on the employees’ length of service to the company. Normally, the wage levels are pegged on the employees’ academic status. In addition, some Canadian companies offer higher salaries compared to the competitors’ salaries in order to hire the competitors’ best talents.
During the1980s, the wage researches indicated there was a very important relationship between the company’s revenues and the increase in the employees’ wages.
The research focused on the importance of including the other factors that influence the ability of the company to increase the employees’ wages. The other factors include the employees’ current production or service performance in relation to the company’s preset benchmarks as well as net revenues.
Instead, the increases in the employees’ salaries should be based on the employees’ current performance. An employee who fails to reach the monthly benchmarks may be included in the list of possible employees lined up for retrenchment. Such employees will be penalized for their lackluster performances. The unworthy performance may force the company to retrain the affected employees.
In other instances, the company may transfer the employee to another job or department where the employee is more suited. To avoid this unfavorable scenario, the recruitment department should screen each applicant during the hiring process to determine if the selected job applicant can meet production and service benchmarks.
Ping Peng[4] emphasised that salary increases should be on a case to case basis. For example, the Pay Equity Act in Ontario Canada was implemented as the world’s most progressive equal pay for equal work benchmark. Another wage rate research shows the diversity in the salary rates for both men and women in some sectors of the Canadian work environment. Many of the women continue to benefit from Ontario’s implementation of the approved pay equity law.
This clearly shows that the minimum wage should not be increased. The same act focuses on the increases in the men’s and women’s salaries within the Ontario community. According to the same author, there are many sensible and societal effects of salary researches around the world. The researches scrutinize the factors affecting gender pay discrepancies. The nation’s statute makers can learn from their personal successes and failures during the crafting and implementation of the Ontario Pay equity law.
The law makers will not produce any significant progress in decreasing the wage variance if they only depend on the workers to complain about the inequality in their take home wages. A proactive pay equity law, like the in Ontario Pay Equity Act, will force companies to focus more attention to reducing or eliminating gender pay discrimination policies.
The above act clearly shows that Ontario’s challenging endeavor with pay equity generates valuable lessons for different communities around the world.
In terms of the Ontario Pay Equity Act, the Act’s value lies in its research finding. Peter Dolton[5] theorized there are some scholarly works that focus on scrutinizing the breakdown of the different pay methods implemented in the United Kingdom. There are a few jobs focusing on scrutinizing the effectiveness of the legal tenets of the same statute.
The organisation especialist, David Gray,[6] insists the model focusing on fixed effects can maintain the employee’s hidden work behaviour. Mr. Gray’ research focuses on finding the variance among the model work outcome and the employees’ actual job output.
The research shows the salaries offered by companies will trigger the public interest for more job openings. Workers prefer to transfer to jobs with higher pay.
According to Raaj Tiagi[7], a handful of researches pointed to a Canadian community sector income gap between men and women. The extent of the variance has not been quantified in recent decades.
Another survey conducted shows that statistical figures from the Canadian Labour environment for 2008 indicated there is no discrimination in terms of wages between male and female workers in the public workplace. On the other hand, the salaries of the males are generally higher than the salaries of the females by an estimated five percent.
The pure wage premium or economic rent which the community workers who receive similar to their counterparts in the private sector is $1.00, or five percent for men and $3.15, or 20 per cent for women.
In addition, Richard Shearmur[8] reiterated in lieu of increasing the minimum wage, the company should let the free labour market take its free course. Some of the Canadian workers migrate to other countries to search for higher job vacancies. Many of the current Canadian employees migrate from other countries.
Majority of the new employees migrate to Canada from third world countries. The migration is brought about by the foreign worker’s need to earn more money to send home.
The workers generally work in different fields of interest. The most popular jobs include nurses and other medical professionals. The professionals include engineers who work in building constructions, chartered accountants who work in business environments, and other professional jobs.
Tony Fang[9] insists that the minority group members do not suffer from wage discrimination in Canada. This means that the minority group’s workers are happy with their current salary rate. Some of the minority group’s members receive performance bonuses and other perks for producing quality outputs.
In addition, the article discusses the minor differences in the wage rates of the employees in terms of gender among the Canadian minority groups. The article demonstrates critical gender differences. In terms of the minimum wage law, the disparity between the salaries of both males and females is not that clearly disadvantageous to the person with the lower salary.
In addition, Tony Fang[10] emphasised the labour survey statistical data shows that
Labour wage increases occurred during different time periods when comparing the minimum wage increase dates of the different localities in Canada. The older workers felt very happy with the wage increases.
This is very understandable because the salary increases are generally granted to employees who have stayed with the company for many years. The new employees are left out of the minimum wage salary increase issue because the increase in the salaries is applied to regular or permanent workers.
Stephanie Luis theorized wage rates should be based on one’s skills or expertise. The study focusing on the cross-country comparison of the relation between wage rates and the skills or expertise between employees in the United States and Canada indicate variances in the returns to higher education between the two countries starting during the 1980s.
The research shows that there are variances in the salaries of workers. The difference is brought about by the difference in the expertise or skill of the workers. In addition, the salary of a Canadian office worker is normally higher than the salary of the same office worker in India.
In addition, the wages of employees who are members of labour unions are higher than the salaries of employees who are not members of labour unions. Likewise, the diversity in Canadian workers’ salaries is based on one’s educational attainment. Generally, persons with higher academic degrees have higher salaries compared to those with lower academic degrees.
In addition, Ryan Minor[11] introduced his findings on the Canadian salary rates. He echoed what the majority of Canadians have felt. Inflation is a reality within the realms of the Canadian business climate. The current economic depression created a huge dent in the buoyant and comfortable business communities.
The communities include both the companies hiring the workers and the employees who are making a living by accomplishing their individual tasks and responsibilities. In addition, there are disparities in terms of wages in different parts of the Canadian nation. In effect, the inflation influenced many Canadian companies to increase their selling prices.
The increase in the companies’ selling prices triggered a corresponding increase in the purchase prices of raw materials used to craft the finished productions. The Canadian companies are forced to increase their selling prices in order to recuperate the cost of the salary increase in producing each inflation- affected products and services. The 1990s inflation forced companies to postpone their employee’s salary increases.
Raaj Tiagi[12] also found in another research the occurrence of the disparity in the Canadian workforces’ wages. The disparities also occurred in a gender biased situation.
However, the disparity is negligible. The Canadian Labour Survey of 2008 indicated that both men and women were paid fairly in terms of their capacity and work output. The average wage of the male employees in the Canadian community is an estimated five percent higher than the average wage of the female Canadian employee.
David Gray[13] espoused that different industries offer different wage rates to its Canadian workers. The workers from very profitable companies can afford to give higher salaries to its employees compared to workers working in small scale or financially tight companies.
Another finding of the study indicates the employees’ wages are pegged on the companies’ policy on salary increases. Some companies offer minimal wages especially during their start up or infancy stage because sales are still trickling into the company’s coffers.
The study shows some companies react immediate to the nation’s economic conditions. For example, the immediate reaction is to increase the workers’ salaries during times of economic plenty or profitability. In addition, employees will resign from a company that shows any sign of nearing the brink of bankruptcy.
Jason Allen[14] insisted housing prices affect the wages of Canadian employees. Another research done in Canada between 1985 and 2005 focused on the prices of goods and services during different economic scenarios. The research findings indicate there is a positive relationship between home prices and the salaries of employees. City-specific variables such as union wage levels and the issuance of building permits are positively affected by current home prices.
Tony Fang[15] theorised some of the employees belonging to the minority groups receive lower salaries compared employees in other sectors of the Canadian work environment. The study clearly discussed wage variances are minimal between the men and women among the minority sector of the Canadian work environment. Research shows minority women who are paid in terms of output pay earn more than the non-minority women.
Deborah Figart[16] insisted the mathematical analysis of a living wage is a political act. “That act provides an illustration of the failures of the labor market to support the basic needs of a large number of men and women. The determination of income-adequate family budgets has a long history.
Living wage and family wage campaigns also have a long and sometimes checkered history The US Bureau of Labor Statistics (BLS) created its first family budget almost a century ago that early BLS computation found that a cotton mill worker required an annual income of $713 to provide a [fair] standard of living for a family of five”.
Built more than 40 years ago on a faulty methodological structure, poverty thresholds offered the policy standard that people use to determine if society has provided an adequate income for a family to live.
Every family has a living wage indicating poverty thresholds are not just a little wrong. For a family requires a yearly income that is two times the published poverty threshold numbers to be self-sufficient.
Conclusion
The current economic crisis force many companies to reduce operating expenses that including increasing wages. The economic depression enveloping the United States significantly influenced many Canadian companies to postpone salary increases. The increase in the basic salary may force some companies to retrench employees.
Many companies within the United States closed shop because of the current economic depression. The economic depression is characterised by the increase in the prices of basic goods and services. In turn, the increase in the prices of goods and services will lessen the average company’s profits.
The continuing economic depression dragged many United States companies into the quagmire of bankruptcy. The research discusses the necessity to increase the Canadian minimum wage. The research focuses on advantages of increasing the minimum wage law. Indeed, the Canadian minimum wage should not be increased.
Bibliography
Stephen Slavin, S. Economics. (London: Irwin, 2009):10.
Jonathan Wadsworth. Did the National Minimum Wage Affect UK Prices, Fiscal Studies, 31(2010):81-120.
F. MacPhail,. “What Caused Earnings Inequality to Increase in Canada during the 1980s.” Cambridge Journal of Economics24, no. 2 (2000):153-175.
Ping Peng, Canada’s Bold Experiment with Pay Equity, Canadian Journal of Economics, 25 (2010):57-585.
Peter Dolton, The UK National Minimum Wage in Retrospect, Fiscal Studies, 31(2011):509 -534.
David Grady, The responsiveness of industry wages to low-frequency shocks in Canada. Canadian Journal of Economics.43(4): 1221-1242.
Raaj Tiagi, Public Sector Wage Premium in Canada: Evidence from Labour Force Survey. Labour. 24(2010): 456-473.
Richard Shearmur, Where does all the talent flow?BN Migration of young graduates andnongraduates, Canada 1996-2001. The Canadian Geographer. 54 (2010):305-323.
Tony Fang, Immigration, Ethnic Wage Differentials and Output Pay in Canada. British Journal of Industrial Relations, Volume 48, Number 1, March 2010 , pp. 109-130(22).
Stephen Luis. The Structure of Wages by Firm Size: A Comparison of Canada and theUSA. 23 (2009):293-317.
Ryan Minor, Inflation regimes and the stability of the pass-through of wages to consumer prices in Canada, AppliedEconcomics,(41(2009):1003-1017.
Raaj Tiagi, Public Sector Wage Premium in Canada: Evidence from Labour Force Survey. Labour. 24(2010):456-473.
David Grady, The responsiveness of industry wages to low-frequency shocks in Canada. CanadianJournal of Economics. 43(4):1221-1242.
Allen Jason,Source: Canadian city housing prices and urban market segmentation.Canadian Journal of Economics, 42 (2009) pp. 1132-1149.
Tony Fang, Minimum Wage Impacts on Older Workers: Longitudinal Estimates from CanadaBritish Journal of Industrial Relations. 47 (2009):371-387.
Deborah Figart, Living Wage Movments.(New York:Routledge):51.
Today, many states in the US have a minimum wage standard that is established on the federal level. At the same time, states have the right to independently increase wages to employees. If non-tipped workers are to receive at least $ 7.25 per hour, for tipped employees, this hourly standard is only $ 2.13 (Even & Macpherson, 2014). With the growing economy and the overall rise in the cost of life, it becomes evident that the minimum wage is insufficient for people to satisfy their basic needs and ensure an appropriate standard of living. The identified issue is complicated by the fact that the political climate in Washington is not beneficial to increasing wages. This paper aims at discussing the potential increase in the minimum wage to employees working in the restaurant industry.
The theme of the minimum wage is controversial since there are supporters and opponents of its augmentation. On the one hand, it is argued that the increased wage will promote employee satisfaction, increase in their earnings, as well as the economic activity in the mentioned sector (Dube, Lester, & Reich, 2016). One of the key problems of the US related to employment – unequal income – is likely to be addressed or, at least, minimized as a result of the better payment.
Also, the latter is associated with improved productivity stimulated by the opportunity to earn more. On the other hand, such changes may lead to employee layoffs and force businesses to close. In case companies would decide that pay is too high to afford it, they may prefer replacing people with cheap robots (Dube et al., 2016). It should also be emphasized that wage raise may disproportionately damage the poorest regions of the US, which may encounter an increase in the costs of products and services. Therefore, it is critical to understand the specified topic in an in-depth manner based on the relevant studies conducted by scholars and official organizations.
While several states, including California and New York, have already raised their wages, the research was performed in order to reveal the effects of changes on employees and the market. In their study, Allegretto, Godoey, Nadler, and Reich (2018) examined the restaurant industry that is considered to be the major provider of low-wage jobs in six large cities of California, where the minimum wage was increased to $ 10-15 per hour.
The mentioned initiative was driven by the local authorities, while on the federal level, the wage remains minimal. Based on synthetic control methods and an event study, the authors investigated each of the cities and pooled the information together to present the accumulated findings. It was found that “a 10 percent increase in the minimum wage increases earnings in the food services industry between 1.3 and 2.5 percent” (Allegretto et al., 2018, p. 39). In other words, the increase in wages has a positive impact on employment effects. These results are consistent with the previous studies, as reported in the mentioned article.
One of the limitations to boosting minimum wages is that employers may replace qualified workers with low-skilled employees, thus avoiding additional costs. Even though such a threat exists, it is reported that employment levels are likely to remain without significant reductions (Allegretto et al., 2018). In fact, low-income people will definitely benefit from better pay compared to potential employment losses. In this connection, one may assume that the rest of the states should also consider the rise in minimum wages. Specific policies are to be introduced on the state level to ensure that people receive an adequate amount of pay sufficient to meet their needs that may vary, depending on a certain community.
Another limitation is the fact that many studies exclude respondents who work overtime since there are several ways to pay for it. In other words, the majority of the existing studies fail to clarify how a minimum wage affects overtime and related issues. It seems that additional research needs to be provided to make sure that the interests of tipped employees who work overtime in the restaurant industry are also taken into consideration.
The main channels to adjust minimum wages are associated with reinventing labor environment, hours, and payment. As practice shows, employees working for a minimum seem to be less committed to their work as they know that they can always find something similar (Hirsch, Kaufman, & Zelenska, 2015). Donald Trump, during his election campaign, did not adhere to the classical Republican principle that not with the minimum wage but inflation should be combated.
He repeatedly stated the need to raise the federal minimum to $ 10 and make every effort for further growth. In this connection, it is important to clarify the connection between the national minimum and the leverage of the Federal Reserve System (Allegretto et al., 2018). If the interest rate is raised too often, then the current $ 7.25 per hour will be insufficient for the restaurant industry employees to survive as, most likely, products and services will grow in price. Therefore, the identified issue should be taken into account in the context of the general economic course of the country and particular states.
Since the majority of workers in the restaurant industry receive a minimum wage, its increase may lead to higher costs and prices for manufactured products. According to Even and Macpherson (2014), the reason for low wages is that workers are predominantly young and have no experience. They are likely to work overtime, as electronic payroll data shows. The overall overtime in the mentioned industry is likely to decrease from “12% in 2007 to 7% in 2009, and average overtime falls from 0.74 to 0.45 hours” (Even & Macpherson, 2014, p. 5). Restaurants that practice overtime has better pay per hour and fewer employees working in a full-time manner.
As for enhancing their wages, the above article suggests that overtime should be paid more fairly since employees spend more time and effort to perform their work. Accordingly, some companies may reject using overtime and focus on hiring more employees, which will prevent employees who want to work more from receiving better pay (Hirsch et al., 2015). A seasonal factor should be taken into account as restaurants in resort towns and cities have a huge influx of customers only during summer vacations.
To conclude, some employees and economists argue that increasing the minimum rate can enhance labor productivity, reduce staff turnover, and assist low-income families in improving their standard of living. The opponents of this proposal parry that prices will eventually rise and companies in which wages take up a significant share of costs will suffer. Thus, further policies should be developed to ensure benefits both for employees and employers, and studies are to be conducted to reveal and anticipate the potential effects of increased minimum wages.
References
Allegretto, S., Godoey, A., Nadler, C., & Reich, M. (2018). The new wave of local minimum wage policies: Evidence from six cities. SWED Policy Report. Web.
Dube, A., Lester, T. W., & Reich, M. (2016). Minimum wage shocks, employment flows, and labor market frictions. Journal of Labor Economics, 34(3), 663-704.
Even, W. E., & Macpherson, D. A. (2014). The effect of the tipped minimum wage on employees in the US restaurant industry. Southern Economic Journal, 80(3), 633-655.
Hirsch, B. T., Kaufman, B. E., & Zelenska, T. (2015). Minimum wage channels of adjustment. Industrial Relations: A Journal of Economy and Society, 54(2), 199-239.
Over the years, Canada has witnessed an increase in its minimum wage, a situation that has affected aspects of employment and poverty in the North American country. The Canadian Employment Standards Act provides regulatory mechanisms that cover diverse matters, including minimum wages. The minimum wage policy in the Employment Standards Act provides stipulations regarding the least hourly and daily earnings for workers in different job types. The policy seeks to stabilize the minimum wage relative to the average hourly earnings for various workers in Canada. Therefore, this paper critically analyzes the minimum wage policy in Canada as provided for in the Employment Standards Act.
Purpose of the Policy
The minimum wage policy in Canada seeks to achieve various purposes of the Employment Standards Act. While Berry (2013) paints a rather worrying picture where the last three decades have been marked by wage inequalities that have left Canadians discontented, Tipton, Milligan, and Reilly (2013) offer a relieving opinion that is anchored on the country’s minimum wage policy. Berry (2013) reveals poverty as among the devastating impacts of wage disparities in Canada, a situation that may be linked to the push for reforms in the country’s employment sector. In response, according to Tipton et al. (2013), the minimum wage policy was put in place to counter the rising poverty level by ensuring that employees in Canada experienced the basic standards of compensation and employment conditions. In my opinion, the minimum wage policy not only enhances the fair treatment of employees but also facilitates the development of an efficient and productive workforce that can fully contribute to the country’s prosperity. Although the two authors above agree that the minimum wage policy seeks to stabilize the compensation received by employees in the Canadian economy by upholding the essence of fairness, they do not capture its overall aim of helping employees to attain their work and family responsibilities.
Values Upheld by the Policy
Based on the 2017 amendments concerning the Canadian Employment Standards Act (2018), the hourly minimum wage of $11.35 was arrived at to ensure that employees, including resident caretakers, liquor servers, and farmworkers receive reasonable compensation. This article is comparable to Tipton et al.’s (2013) work since both emphasize the issue of fairness. In other words, the realization of fairness in the remuneration of employees in Canada curbs exploitation thereby promoting equality. The policy assumes that employees in various fields deserve a minimum wage that is reasonable and fair, regardless of the nature of the job they perform. The policy reflects on the ideology that employers should pay employees the required minimum wage as stipulated in the regulations. In my opinion, the prescriptions of the minimum wage policy allow the power to operate in the industrial sector by making it mandatory for employers to pay employees fairly.
The Wider Social Contexts of People’s Lives
The minimum wage policy in Canada takes into account the wider social contexts of employees’ lives. As noted earlier, the Employment Standards Act ensures that employees strike a balance between their work and family responsibilities. Meer and West (2016) emphasize that employees get reasonable hourly or daily wages that allow them to sustain their families. Although one may argue that the improved hourly and daily minimum wages allow employees to have disposable income for social expenditures, I regard the example of the minimum wage adjustment done to arrive at the figure indicated in the Employment Standards Act (2018) as insignificant since it does not match the country’s rate of inflation. Nonetheless, I concur with Meer and West (2016) that the policy incorporates the social contexts of employees’ lives by stipulating the minimum wage that enables them to fulfill their work and collective responsibilities.
Beneficiaries of the Policy
Berry (2013) asserts that the minimum wage policy seeks to benefit the entirety of employees in the Canadian economy. It benefits employees working in all areas of employment, including agriculture. For example, it covers resident caretakers, farmworkers, and liquor servers. However, since an update of the policy denotes an increase in the minimum wage in Canada, employers may consider the option of reducing hiring people, especially those paid at an hourly rate. In my judgment, this move may be counterproductive since employment among teenagers would decrease given that they are mostly compensated at an hourly rate. Thus, the policy “leaves out” teenagers who are paid at an hourly rate, although one may argue in favor of Sen and Ariizumi’s (2013) opinion that a decrease in the level of earnings among adolescents will also lower cases of early marriages associated with young people who receive substantial minimum wages.
Discrepancies
Amid the purpose of the minimum wage policy, some discrepancies undermine its achievement in the contemporary socio-political climate. For example, critics such as Fortin and Lemieux (2015) have questioned the ability of the prescribed minimum wages to provide workers with adequate income to support themselves. I believe that the lack of a clear purpose makes it difficult for workers to understand the primary aim of the minimum wage policy, owing to the inadequacy of the rates to fully support workers. Furthermore, politicians in the current settings promise to increase the minimum wage once elected for particular positions. In this respect, despite Fortin and Lemieux’s (2015) opinion that the current socio-political environment makes it difficult for the policy to realize its purpose, I concur with Berry (2013) who offers fact-based views that depict an increasing discontentment among the wider Canadian working population, including graduates below 35 years of age.
People’s Quality of Life
The minimum wage policy applied in Canada impacts the population’s quality of life to a considerable extent. Overall, the policy seeks to improve the population’s living standards by ensuring that workers receive reasonable compensation. The increased rates imply that people working in Canada could have a higher purchasing power that allows them to acquire goods and services that raise their living standards (Meer & West, 2016). By facilitating the development of the country’s workforce, I believe that the policy will realize a prosperous economy denoted by improved living conditions.
Nursing Ethical Obligations
The policy is expected to foster the realization of health equity by ensuring that people from various social strata acquire services without financial constraints (Fortin & Lemieux, 2015). However, Tipton et al. (2013) provide a convincing view that the minimum wage policy will enhance the quality of healthcare provision while at the same time promoting social justice by allowing individuals from diverse backgrounds to access health care. Therefore, I strongly believe that the minimum wage policy in Canada will foster the effective and efficient execution of nursing obligations in the country’s healthcare sector.
Conclusion
The minimum wage bill in Canada seeks to enhance workers’ well-being by improving their ability to support themselves. The policy also incorporates the social contexts of life by ensuring that employees realize equilibrium between their work and family responsibilities. As argued in the paper, although the policy does not benefit the entire workforce, for instance, teenagers, it has been integral in fostering the population’s quality of life.
References
Berry, R. A. (Ed.). (2013). Labor market policies in Canada and Latin America: Challenges of the new millennium. Boston, MA: Kluwer Academic Publishers.
Fortin, N. M., & Lemieux, T. (2015). Changes in wage inequality in Canada: An interprovincial perspective. Canadian Journal of Economics, 48(2), 682-713.
Meer, J., & West, J. (2016). Effects of the minimum wage on employment dynamics. Journal of Human Resources, 51(2), 500-522.
Sen, A., & Ariizumi, H. (2013). Teen families, welfare transfers, and the minimum wage: Evidence from Canada. Canadian Journal of Economics, 46(1), 338-360.
Tipton, M. J., Milligan, G. S., & Reilly, T. J. (2013). Physiological employment standards I. Occupational fitness standards: Objectively subjective? European Journal of Applied Physiology, 113(10), 2435-2446.
Most of the average Americans are living on a wage that the US government has deemed to be enough for the provision of reasonable standards of living.
These wage rates have literally remained at a standstill over the years while the cost of living in the society has been rising day by day. Therefore, people continue working but they cannot be able to afford reasonable living standards for themselves and their families. These situations are very common in America because the minimum wage is not changing with respect to the increasing costs of living.
By 2008, the proportion of the working poor in the US was nearly 30% from a report by Working Poor Families Project titled “Still Working Hard, Still Falling Short” (Eley, para.1). This number has been increasing from the previous years. The result is that as the working poor increases, the future of most children will be at stake. They will not be able to acquire decent education and even health insurance will be a problem.
On the other hand, as the number of poor people increase, the rich continue to become richer since they probably own the companies paying the minimum wages. The companies continue paying low while at the same time increasing their profits. This leads to complete imbalance of the income distribution in the country.
The government therefore needs to set up measures to balance the current income distribution and therefore prevent future widening of the divide. This can effectively be achieved through raising the minimum wage in America. However, the minimum wage has been under a lot of controversy with economists and business owners arguing that increasing the minimum wage would lead to loss of employment.
Economic models propose that increasing the minimum wage would lead to losses of employment by the unskilled workers. Other people argue that increasing the minimum wage would lead to increase in commodity prices by the employers to cover for the increased costs thereby beating the reason for the increase. Therefore, does increasing the minimum wage balance the income distribution or does it increase the imbalance?
Does Increasing the Minimum Wage help or hurt?
The federal minimum wage was first set out in the 1930s and has been constantly reviewed to take into consideration the rising costs of living. For such reasons, the minimum wage was not adjusted through out 1997 to 2007 (“Minimum Wage History, para.1”).This is the longest period that the wage remained constant resulting in the current low rates of wages compared to the cost of living.
From 2008, various states responded by setting their own minimum wage levels above the federal minimum wage. Although initially criticized that these increases would harm the poor more than they would help them, studies in those states that increased the minimum wage have shown that the increase led to increased employment and not vise versa (Thompson, para.7).
At a state level, minimum wage increment led to job growth and therefore, the economic models proposing job loss because of minimum wage increase do not hold. Therefore, this should no longer be a barrier in increasing the minimum wage.
The other argument by some business owners is that increasing the minimum wage will force the businesses to increase the commodity prices thereby further increasing the costs of living. This means that minimum wage increase is a cycle that does not lead to a balance in income distribution.
To solve this, businesses should not look at the increased wage as a cost but as an increase in resources. They should look at ways of increasing the output from the workers as the wages they receive increase. This can be achieved, for example, by technological adaptations that will increase the workers’ output.
Conclusion
To solve the problem of the imbalance in income distribution in the United States, the minimum wage should be adjusted to match up with the current costs of living. States like Illinois and Indiana have shown that increasing the minimum wage does not hurt the employment level but it in fact causes employment growth. With better wages, workers will therefore be able to afford a decent living and secure a better future for their children thus reducing the poverty levels and consequently the gap between the rich and the poor.
Works Cited
Eley, Tom. “Working poor report: Nearly 30 percent of US families subsist on poverty wages.” International committee of the fourth international. 16 Oct. 2008. Web.. https://www.wsws.org/en/articles/2008/10/work-o16.html
Thompson, F. Michael. “Minimum wage impacts on employment: A look at Indiana, Illinois and surrounding Midwestern states.” Recent Indiana business review articles. Indiana business research centre. 2008. Web. http://www.ibrc.indiana.edu/IBR/2008/fall/article1.html
Minimum wage is the lowest pay that an employee should get per hour, per day or per month. These earnings are usually set by the government through legislation; however, two arguments, social and fiscal, are usually presented concerning the issue of minimum wage.
Minimum wage laws usually cover employees who work in the fields of employment with low pay, and are usually imposed to raise the wages to reduce exploitation of the employees by their employers. Governments usually impose minimum wage to reduce poverty; indeed, increase in the minimum wage is also said to increase motivation of the workers and hence lead to more productivity.
However, some economic analysts believe that raising the minimum wage does not reduce poverty, arguing that it in fact increases the levels of poverty since it creates unemployment. These people also argue that increase in the minimum wage hurts small firms severely as they usually try to minimize on their cost of production to maximize on their returns as they continue to grow.
This may usually make the firms to reduce their workforce, and the remaining workforce is usually overworked to compensate for the reduced workforce. These people also believe that minimum wage causes inflation, as organizations tend to increase the cost of their product to cater for the increased cost of production due to the increase.
Theory of minimum wage
Usually, there are theories proposed to explain the effects of minimum wage on the employment. The standard neoclassical theory explains that the availability of labour and employment follow an equilibrium demand supply curve with the downward sloping demand curve for labour and the upward sloping supply curve for labour.
The point of intersection between the downward sloping demand curve and the upward sloping supply is the equilibrium point (Atanova, Tudoreanu and St.Lawrence University 70). This is the equilibrium wage, which the market is capable of offering for labour.
Therefore, if the government imposes a minimum wage lower than the equilibrium wage, this would have no effect since equilibrium wage will be higher than the minimum wage. However, by imposing legislation, which demands, that the minimum wage be higher than the equilibrium wage, this forces the minimum wage from being pushed downwards due to market forces.
However, this creates disequilibrium in the labour supply demand curve with the supply of labour being more than the demand for it by the market. This leads to unemployment as some people will not get work for their skills; indeed, unemployed people are usually worse of than before the minimum wage since they will now have zero income.
Figure 1.1: Standard neoclassic market demand supply of labour curve
However, increase in minimum wage higher than the equilibrium wage does not always result in unemployment. An example is usually explained in Monopsony, a situation where there is only one employer in the labour market. In this situation, the factors that are explained in neoclassical theory do not necessary hold.
In fact, minimum wage significantly influences the direction of employment in the economy as well as eliminating the shortcomings of Monopsony, thus in this situation, the cost of hiring additional workers follows an upward sloping curve, which is usually above the labour supply.
Figure 1.2: Monopsonistic demand supply of labour curve
MRP represents the marginal revenue product curve, which is identical to the market demand curve in standard neoclassic market. MFC represents the marginal cost curve which is the cost incurred by a Monopsonistic firm in hiring a new employee. S represents the factor supply curve identical to the competitive market.
In some instances, raising the minimum wage increases the demand of the product produced by the company. This will therefore make the company to hire more workers in order to increase output to cater for increased demand. This may occur if the workers are also consumers of the product; hence, increasing their wage enables them to buy more of the product.
Analysis of the effects of minimum wage
The labour market rarely fits the characteristics of the ideal standard neoclassical theory or of Monopsony. Therefore, generalization is generally used to explain the effects of minimum wage on employment and poverty levels. Many economists have different views regarding the effects of increasing the minimum wage.
This is because the labour market does not fit the ideal neoclassical situation or the Monopsony situation. Increase in the minimum wage does not necessary lead to loss of employment. Many different states in the United States have not reduced the number of employed people after increasing their minimum wage; a notable example is New Jersey and Pennsylvania.
Increase in minimum wage in these states in 1988 did not lead to reduction of the people employed; in fact, it led to increase in the employment as shown in their data. For instance, the increase in the minimum wage of Vermont and Illinois in January 2006 from $7.0 to 7.25 has been used to show the effects of increasing the minimum wage on employment (Atanova, Tudoreanu and St.Lawrence University 72).
In Vermont, it led to a decrease in the number of people who were employed. However, analysis of the data showed that it was not reliable as there were very many other factors, which affected employment. However, their increase had no effect on employment in Illinois. These are a few examples to show that increase in the minimum wage does not lead to reduced employment.
The argument that increase in the minimum wage usually leads to unemployment is usually viewed differently by different people who have vested interests.
Businesspersons and generally entrepreneurs are usually opposed to increase in minimum wage as it leads to an increase in their cost of production. This is because each entrepreneur usually strives to reduce the cost of production in order to maximize on his or her profits. Labour unions would like to portray the increase in minimum wage as of not having adverse effects on employment.
This is because by showing that it reduces employment they would show that it reduces their members by making them loose employment. Therefore, the debate on minimum wage is usually a passionate one as each group would like to portray the other as being on the wrong. These groups may use many different methods to prove their correctness, sometimes even overlooking some factors while analyzing their data.
Minimum wage does not necessarily lead to inflation since the costs of labour in most organizations does not usually account for a large percentage of overall expenses. Increase in the minimum wage cannot be directly related to the loss of employment, as there are many other political and economic factors, which usually affect employment.
It is clear that both theories are based upon ideal situations. However ideal situation rarely do not occur. Therefore, it would be hard to single out increase in the levels of unemployment due minimum wage increase. Form the above two theories it is clear that markets cannot be left to self regulate themselves especially in third world countries so as to reduce their levels of poverty.
Conclusion
The issue of minimum wage is mainly a political one. Governments usually increase minimum wages at a rate lower than the rates of inflation in order to reduce the powers labour unions have on the powers. However, minimum wage should be increased from time to time to cater for inflation and reduce the levels of poverty.
Works Cited
Atanova, Stefka, Tudoreanu, Mihnea and St.Lawrence University. “The Effects of a Raised Minimum Wage on Employment: Differences across States and Social Groups.” Issues in Political Economy, Vol. 19, pp 69-89. 2009. Web.
A minimum wage is the lowest form of compensation that employees may receive, be it hourly, daily or in a monthly form. On other terms, it may also be defined as the lowest wage that an employee may peddle his/her labor. Despite the minimal wages law exhibiting great jurisdictions, most opinion makers’ epic large proportions of differences in terms of the pros and the cons that the said minimal wages exhibit.
Some of the pros brought forth about the minimal wages include the opinion that with the existence of minimum wages, the standards of living are bound to improve immensely with some quarters, confessing of a reduction in poverty while others saying that the business has become more and more efficient.
The cons that have been associated with the minimum wages include the increase in the rate of unemployment and the low productivity among some workers due to the inexperience among some workers hence benefiting the more skilled workers over the lesser skilled ones.
Economists differ on the presumed impact of minimum wages in the real world. The distress usually comes as a result of competing and comparing the empirical tests of demand and supply and the degree of efficiency in the labor markets that models most efficiently predict competition (Letcher 31). Some of the empirical studies that have been studied about these minimal wages include among others the effects on the employment sector which until now stands as the most studied aspect.
Rates of the minimal wages vary widely across different scopes around the world, not only in a specific monetary rate for instance the difference in the monetary rates in the United States and the United Kingdom, where it is $8.67 in Washington in the United States and 6.08 pounds in the United Kingdom for those that are over the age of 21, but also the period in which the rates are paid greatly differs (Blackman 93).
It is explicitly hard to disintegrate the minimal wage facts from other variables that may have any considerable effects on employment. There are some thought out facts that try to argue in favor of the minimum wages, some of the in scripted pros include the belief that even the standards of living of the most vulnerable class in the most ravaged societies greatly increases. Another advantage depicted is that it encourages the workers to work harder and motivates them more (Carmen 89).
It is good to know that with each passing day people try to get money legally due to their work but not in any way that is out of the law. It also encourages automation and efficiency is also encouraged more in the industry. Some researchers are also of the opinion that the low paying jobs are scrapped and in this regard more and more people are forced to work harder and earn payments from the highest earning jobs. Some researchers who are for these minimum wages epic that there is increased developments in the technological departments.
On the other hand the criticizers of this law epic that it tends to hurt the small business and alternatively favoring the larger ones. These criticizers continue to epic that the minimum wage tends to reduce the demand expected of workers where they argue that this is greatly caused by the reduction in the number of the jobs and also, by the reduction in the number of hours.
The inflation in terms of price also tends to increase as the prices of goods are raised by the respective business while trying to compensate. They also argue that the poorest and less productive workers are left out in favor of others.
The researchers also argue that small salaries can easily result in the reduction of the working places. They continue to argue further that the smallest firms with payroll budgets that are limited find it extremely hard to retain their most valuable workers, since they are unable to give them considerable attractive wages as compared to the unskilled workers, who are paid the artificial high minimum and so the task of adding more workers become great.
These cons have also rendered it ineffective when trying to reduce poverty and also more damaging to business than other methods. It has also been proved that it discourages further education since most people are lured into the job market. Finally, it exudes the con of wiping off the low cost competitors from the markets and impedes the different organizations from reducing the costs of the wages during trade recessions, which augurs into inefficiencies in the economic sectors of the various industries (Lewinsky 11).
Despite the cons that have been put across by various researchers, proof across various sections in the world Diaspora has only explicated immense pros brought forth by these minimal wages. One example that clearly demonstrates this is a study carried out in the US that showed that the payrolls and the rank of the working places increase with each passing year thanks to the minimum wages (Lewinsky 11).
Another example is the introduction of the minimal wage in the United Kingdom in 1999, where it was initially strongly opposed by the conservative party but it is no longer opposed and the conservatives even reversed their stand in the year 2000 after it reduced the hiring rates. It also reduced the working hours and the prices have increased greatly coupled by the increase in the production of the current workers.
This research paper will look in a great perspective on the different minimum wages that have been put in different states (cities) of the United States of America. Due to the outsized state of the states, the paper will only give examples of some of the most common states or cities that have developed considerable efforts in the introduction of the minimum wages and for jobs that have been shielded by the minimum wage laws of the federal state.
A common exclusion of the minimum wage of the federal system is a company that exudes revenues that are way below 500000 US dollars per annum while not being involved in any business of the interstates. In addition, the employees that receive a certain part of their salaries from tips are expected to have their whole compensation including tips meet those minimum wages.
So on often basis, their hourly wages before tips is occasionally lesser than the minimum wages (Willis 75). Moreover, some cities within states may experience higher minimum wages that the rest of the cities. The paper will look into seven different states namely, Washington, Texas, Ohio, New York, Kansas, Iowa, California.
The first city that will give us a close overview of the different minimum wages in US is the city of Washington. The 2011 figures put the minimum wage as 8.67 US dollars. The minimum wage applies to both the agriculture and the jobs that are non-agriculture, but despite this the people that are 14 and 15 years in age may receive 85% of the minimum wage that is 7.37 in US dollars.
Business Analysts have gone further to predict an impressive minimum wage of 9.04 US dollars by the beginning of the year 2012. The minimum wage of Texas is 7.25 similar to that of New York which also enjoys a minimum for relieved workers of 536.10 US dollars.
The minimum wage of Ohio exceeds that of New York and Texas to post at 7.40 US dollars and researchers expect it to increase to 7.70 US dollars by the beginning of the year 2012. Employees who are 16 years old and where the employers gross is less than 237,000 US dollars per annum receive a minimum wage of 7.25 US dollars. For most years, the minimum wage of Kansas was the lowest in the whole nation, a partly 2.65 US dollars but it has since been increased to meet the federal level and now stands high on 7.25 US dollars.
The minimum wage of Iowa stands at the same level as that of Kansas. Service establishments and small retailers do not necessarily require to pay the minimum wage, mostly those that receive less than 300,000 annually (Willis 75). Sometimes, 60% of the minimum wage which is presently about 4.35 US dollars is given to tipped workers.
The last of the sample states is California with a minimum wage of 8.00 US dollars and San Francisco city which receives a considerably high minimum wage of 9.92 US dollars. The minimum wage decree in this state and city states that relieved workers must at least make twice the minimum wage of the state.
Works Cited
Blackman, William. The employer’s legal handbook: manage your employees and workplace. New Jersey, NJ: Lewis Publishers, 2001. Print.
Carmen, Reinhart. Minimum wage fixing: an international review of practices and problems. New York, NY: Princeton University Press, 2009. Print.
Letcher, Trevor, and Daniel, Vallero. Biennial report of the industrial welfare commission of the state. Oxford, UK: Academic Press, 2011. Print.
Lewinsky, Allison. Minimum wage policy in Great Britain and the United States. New York, NY: Nova Science Publishers Inc, 2007. Print.
Willis, Nordlund. The quest for a living wage: the history of the federal minimum wage, New York, NY: Greenwood publishing Group, 2007. Print.
The process of setting a minimum wage on a state and country-level is important in order to assess the cost of living in a particular area. While the federal minimum wage is a highly significant number, state minimum wages should be taken into account as identifiers for the quality of life in different states. For example, many conclusions can be drawn if a state has a high minimum wage. This paper aims to explore the minimum wage in the state of California as well as the significance of independent minimum wages for separate states and the conditions of workers in outsourced companies.
According to the most recent data, the federal minimum wage in the US equals $7.25 (National Conference of State Legislatures, 2017). The minimum wage in the state of California is higher, amounting to $10 or $10.50 (National Conference of State Legislatures, 2017). It is an important distinction because it signifies that the cost of living in California differs from the possible cost of living in other states. According to Boeri (2012), minimum wages respond to changing economic conditions of the territories.
Therefore, it is safe to assume that setting different minimum wages for states has a great significance for the country’s economic situation. While in some states minimum wage workers can afford to live on the federal minimum wage, the prices and demands of other states may put such employees in a difficult situation. The process of establishing if the minimum wage should be higher than the federal one relies on the cost of living formula (Boeri, 2012).
Thus, it supports the idea of different minimum wages because the difference in prices and costs in various states is evident. Moreover, according to Boeri (2012), the government of the US sets minimal wages without a collective agreement, which leads to it being lower than collectively bargained minimum wages. Therefore, allowing the states to oversee their independent wages encourages more people to engage in the process. The United States should allow the states to have different minimum wages that correspond to the citizens’ needs.
If an organization decides to broaden its reach or relocate its manufacturing plants to another country, the question of wages becomes rather topical. Outsourcing to a developing nation is often seen as a way to lower the expenses of a company. Thus, many owners would want to scale back on every possible spending. That approach usually involves lowering wages for employees who are paid less than their counterparts in developed countries. Such cost-cutting often leads to companies hiring unskilled staff, which in turn may result in lower productivity and overall quality of the final products and services.
According to Wolfson and Belman (2004), small increases in minimum wages affect the rate of employment insignificantly. Thus, by providing workers in developing countries with federal minimum wages from the US may encourage them to work more efficiently and create high-quality products.
The federal minimum wage in the US should be considered as a guide to other states in order to determine their level of living. State minimum wages represent the living conditions of its residents and allow the citizens to pay for basic living necessities. Although outsourcing is an established way of saving money for many companies, employers should consider investing in their employees rather than providing them with the smallest pay possible. All in all, while the federal minimum wage should not be enforced in these conditions, it should be taken into account.
References
Boeri, T. (2012). Setting the minimum wage. Labour Economics, 19(3), 281-290.
National Conference of State Legislatures. (2017). State minimum wages. Web.
Wolfson, P., & Belman, D. (2004). The minimum wage: Consequences for prices and quantities in low-wage labor markets. Journal of Business & Economic Statistics, 22(3), 296-311.
Like any other commodity, labor is determined by supply and demand in the market, and any artificial intervention disrupts the market balance, leading to shortages and gray employment. Some economists argue that any restrictions on working conditions are harmful. Employees who are unsatisfied with their work can always change employers and conditions in the free market. In fact, in almost all developed countries, the labor market is highly regulated, and there are several important reasons for that.
At the same time, it is worth noting labor is a particular commodity, and its low cost can have serious social and political consequences. In reality, it is not always possible to change the place of work or occupation due to the asymmetry of the employer-employee relationship. The simplest example is when there are more applicants than jobs, and the employer dictates his conditions to applicants.
Available statistics provide another argument in favor of minimum wages. Worst of all, Low salaries grow the worst, and this is despite the tremendous growth in the incomes of highly paid top managers (Gould). This disease of developed and developing economies is known as economic inequality, and the primary way to combat it is the redistribution of income, which is carried out, among other things, through the establishment and indexation of minimum wages.
Certainly, the living wage, in this sense, is an essential factor in determining the minimum wage level. Just because one works full time does not necessarily mean they are not a beggar in today’s world. Therefore, since the cost of living is estimated based on accurate prices for food, shelter, and transport, and relying on this indicator, it is possible to control poverty. Moreover, the living wage provision is argued to make workers happier and increase morale since they feel safer (Smith). However, the universal living age does not seem to reflect the regional differences and, thus, is irrelevant for the purposes mentioned above.
Works Cited
Gould, Elise. “State of Working America Wages 2019: A Story of Slow, Uneven, and Unequal Wage Growth Over the Last 40 Years.” Economic Policy Institute, Web.
Smith, Kelly Anne. “What You Need to Know About the Minimum Wage Debate.” Forbes Advisor, Web.
The national wage structure influences socioeconomic indicators such as poverty and unemployment levels. It specifies the statutory minimum wages for the low-tier workforce in commerce, industry, and other sectors. Nations that have ratified the ILO conventions have mechanisms and procedures for setting the minimum wage in line with their socioeconomic development policies. The minimum wage is the lowest statutory limit of remuneration for wage earners in different sectors or regions.
In Saudi, in a bid to foster Saudization, the labour ministry sanctioned a monthly minimum wage of $800 in 2012, causing a shift in labour demand and supply (Saudi Ministry of Labour 2). This research paper examines the notion of fair wage and the impact of minimum wage policies on the Saudi vs. Malaysia’s labour markets. It also explores the correlation between higher wages and workforce productivity.
Fair Wage
The minimum wage delimits the lowest remuneration sufficient to meet family needs, taking into account the economic indicators, type of occupation, and collective bargaining considerations (“The World Factbook: Saudi Arabia” par. 8).
Nations reserve the discretion, under the ILO convention number 131, to fix statutory minimum wage rates through a consultative process involving social actors from different industries or sectors (“The World Factbook: Saudi Arabia” par. 14). Therefore, minimum wages may differ depending on the type of sector or enterprise. Fair wage encompasses better working conditions, employment benefits, and social security to reduce income inequalities and improve living standards.
The key attributes of fair wage include regularity of the payment, lump-sum pay, and non-discriminatory practices. A fair wage is a product of an impartial wage structure that considers not only variables such as job skills, competencies, and professional experience, but also the working conditions of the workforce.
The concept of fairness in the minimum wage also discourages the practice of subjecting workers to long working hours. Therefore, a fair wage is the minimum living wage that “just share of the fruits of progress” and improved performance (International Labour Office [ILO] 103). In this respect, the fair wage expands the concepts of the living wage and minimum wage to include the conditions of work.
The minimum wages in the production industry vary widely even among manufacturers involved in the same line of business. In 2014, the global minimum wage for the clothing and textile sectors averaged 35% and 25% lower than the overall rate in the production industry (“The World Factbook: Saudi Arabia” par. 24).
Salary levels varied between €752 and €1,442 for skilled and unskilled workers, respectively. In most countries, textile sector wages are substantially higher than clothing sector wages (“The World Factbook: Saudi Arabia” par. 26). The differences stem from the fact that public agencies set a different rate for each sector.
A key attribute of a fair wage is non-discrimination of workers. In countries like Cambodia, male workers earned 13.3% more than their female counterparts between 2004 and 2008 did, contravening the concept of fair wage (“The World Factbook: Saudi Arabia” par. 17). Male workers, in both clothing and textile factories, occupy managerial roles, and thus, earn better compensation than female workers receive.
The ILO requires countries to create laws that protect workers against excessive work hours, entitle them to annual leave, and provide overtime compensation (92). Thus, minimum wages in the textile and clothing factories negate the fair wage concept as employees work long hours without overtime compensation and do not receive the recommended leave days.
A Comparison of Minimum Wage Policies: Saudi Arabia vs. Malaysia
Saudi Arabia
In 2011, the Saudi Ministry of Labour launched the Nataqat policy to boost the population of locals in the workforce and reduce unemployment. The Nataqat, which is Arabic for ‘zones’, groups firms in Saudi, including multinational companies, into four categories, “red, yellow, green, and platinum” based on the proportion of Saudi nationals employed (Saudi Ministry of Labour 5).
Depending on the category, a firm can enjoy certain privileges or receive sanctions (red zone) for employing a disproportionate number of expats. The policy has increased the demand for Saudi professionals and increased the minimum wage rate, causing the demand curve to move to the right. The effect of this policy has had on the demand curve can be illustrated as shown in Graph 1 below.
Graph 1: The effect of the Nataqat policy on minimum wage
Before 2012, Saudi Arabia had no policy to guide minimum wage rates across various sectors (Saudi Ministry of Labour 2). In 2012, the Saudi government set a statutory monthly rate of $800 for both public servants and private sector employees. Subsequently, the Saudi Ministry of Labour created a legislation demanding that all Saudi nationals employed in private firms be remunerated over the minimum wage for a company to qualify for Nitaqat privileges (6).
In this respect, most Saudi workers earn an income exceeding $800 per month. The higher minimum wage encouraged the Saudis to work. The competitive wages coupled with the favourable Nataqat policy had a dual effect of driving the demand for Saudi labour force to the right and reducing unemployment levels as shown in Graph 2 below.
Graph 2: The effect of minimum wage policy on labour demand
The Saudi authorities implemented stricter work permit laws for foreign workers in 2012. Expatriates pay up to $650 per annum to receive a one-year renewable work permit (Saudi Ministry of Labour 4). The same law also prohibits them from switching employers in the middle of their contract. These laws led to an increase in the supply of local labour force while that of expatriates declined by up to 20% in one year (“The World Factbook: Saudi Arabia” par. 6). The implementation of these initiatives led to an increase in the minimum wages as well as the demand for local workers.
Graph 3: The effect of employment statutes on labour supply
The minimum wage rate implemented in Saudi has led to an increase in the supply of local workers. However, the Nitaqat and stricter laws that limit the number of expats in the country have increased the demand for Saudi workers.
Malaysia
The Malaysian government adopted different minimum wage laws in 2013 for various regions. Accordingly, the monthly minimum wage stands at “RM900 or $216 for Peninsular Malaysia and RM800 or $192 for Sabah, Sarawak, and Labuan” (Yuen 19). The policy aims at promoting the standards of living of 27% of the workforce and their households while incentivising investment inflows.
The multiple rates have increased the minimum wage of agricultural sector workers across Malaysia. The policy has also enhanced labour efficiency and participation, eliminating market distortions (Yuen 21). Unlike Saudi, Malaysia’s unemployment levels have remained low since implementing the policy while the demand for labour continues to rise.
Yuen attributes this trend to Malaysia’s strong economic structures and a stable labour market (23). Therefore, Malaysia’s minimum wage policy has caused the demand curve to shift to the right while the unemployment levels have remained low, indicating that the supply of the workforce matches the demand.
Unlike Saudi Arabia, Malaysia has a low proportion of foreign workers. Therefore, Malaysia does not have the unemployment problem (surplus labour force) experienced by Saudi Arabia. The influx of foreign workers into Saudi increases labour supply, affecting minimum wage rates.
Nonlocal workers from low-income countries are preferred to the Saudis by multinational enterprises because they earn lower wages than their Saudi counterparts do. However, policy initiatives such as the Nitaqat have the potential of limiting the number of expatriates entering Saudi to stabilise the labour market.
Strategies for Solving the Low-Wage Problem
Countries employ a variety of mechanisms ranging from persuasion to sanctions to address minimum wage challenges. Persuasion centres on the concepts of ‘fair play’ in minimum wage matters. Public authorities use persuasion as a strategy to build a “culture of compliance” among employers (ILO 77).
Persuasive actions can occur at interpersonal or societal level. For example, interpersonal discussions between the US authorities and coal-mining firms in the 1980s enhanced compliance with fair wage and safety provisions (ILO 92).
Persuasive processes can also occur at the societal level whereby employers who fail to meet the minimum wage requirements are depicted as unfair and exploitative. In the US, the government promoted the living wage in the 1990s as the “means of achieving individual independence” (ILO 81). In response, county authorities enacted laws requiring local firms to raise their wage level above the national minimum wage.
Countries also establish minimum wage regulations to enhance compliance. The minimum wage is arrived at through a consultative process involving the government, firms, workers’ unions, and social actors, making it legally binding. The collective bargaining process yields a mutually agreed rate that is institutionalised by the public authorities. The process enhances compliance because it entails binding agreements as opposed to top-down federal regulations.
For example, the Uruguayan government, in 2006, established wage councils charged with the responsibility of minimum wage fixing and review (ILO 55). The intention was to tame plummeting minimum wage levels and improve the standards of living. The approach saw the monthly minimum wage nearly double (176%) between 2000 and 2008 (ILO 118).
The tripartite wage fixing process in Uruguay helped bridge the income gap between male and female workers and regions. It also ensured a common understanding of the minimum wage regulations by employers and employees. In this regard, the country implemented a national minimum wage system, as opposed to a sector-specific wage to solve its low wage problems.
Besides regulation, governments use capacity-building measures to foster compliance. Employers and workers receive training to build their capacity to comply with the minimum wage law. This strategy empowers workers and enhances their understanding of employee rights.
Public authorities and trade unions spearhead capacity-building initiatives in the US and the UK to increase minimum wage awareness in key sectors such as hospitality (ILO 121). The initiatives primarily centre on minimum wage implementation and working conditions. The aim is to prevent underpayment stemming from the lack of information about the minimum wage and improve the enforcement of labour standards in at-risk industries.
Governments also use labour inspections and monitoring to enhance compliance with the statutory minimum wage. Labour inspection entails monitoring the compliance of a firm with wage rates to identify and punish non-compliant employers (ILO 119). Workers and unions can also monitor the employers’ compliance with labour standards.
Arbitration councils also exist to resolve disputes out of court. In the US and Switzerland, tripartite arbitration councils comprising of representatives of the government, workers, and firms examine collective agreements and make determinations related to minimum wage violations.
Minimum wage violations attract legal sanctions, including hefty fines, in countries that have ratified the ILO conventions. The fines are meant to deter non-compliance with minimum wage provisions. Usually, non-compliant employers are forced to give a payback compensation equivalent to the minimum salary multiplied by the number of times the offence has been repeated (ILO 116).
In the US, criminal prosecution is possible for offenders breaching the minimum wage provisions. Besides sanctions, boycott campaigns and blacklisting of firms constitute other effective tools for enforcing the minimum wage law in the US.
Higher Wages and Productivity
Labour market trends indicate that the wages paid out to workers are not commensurate with the national productivity (gross output) levels. Labour productivity is the “output value produced by a worker, a firm, a sector, or a country per a unit of labour input” (Biesebroeck 61). Outputs can be the physical products that come from a production process, sales, or revenue. Labour input measures the amount of work or hours worked depending on the sector and skills required and adjusting for energy requirements and raw materials.
In neo-Keynesian models, factors that affect worker productivity also influence wages. In this regard, a decline in productivity will affect employment and wage levels (Biesebroeck 65). Even in inelastic labour demand and supply curves, productivity is equivalent to market wage (price) levels as illustrated in Graph 4 below.
Therefore, in the long-term, growth in productivity will lead to a rise in the average wage levels. Changes in labour demand (D1 to D2) increase wages, which, in turn, translates into productivity growth as employees are motivated to work more. Conversely, a decline in demand reduces wages, affecting labour productivity.
Graph 4: The correlation between labour supply/demand and wages (P)
Factors such as worker heterogeneity and location of work affect the wage-productivity relationship. Workers occupy different positions based on their skills, and therefore, productivity is different for each class of employees (Biesebroeck 72). The location of work also determines the wages a firm pays its employees in line with the country’s minimum wage laws. In Saudi, the wages are higher for foreign and local workers.
The adoption of strict employment laws has reduced labour supply, raising the demand for local unskilled workers. In this regard, despite the competitive wages, productivity may decline in Saudi because of the semi-skilled local labour force. In the long term, wages may decline in response to lower productivity.
Conclusion
Countries implement minimum wage policies to improve the standards of living of the labour force and stabilise the labour market. Saudi’s minimum wage policies have evidently reduced unemployment in the country. Wages have also increased, as demand and supply remain steady. However, the labour laws may affect productivity, leading to a drop in average wages.
Works Cited
Biesebroeck, Johannes. How Tight is the Link between Wages and Productivity? A Survey of the Literature. Geneva: International Labour Organization, 2015. Print.
International Labour Office [ILO]. Minimum Wage Systems. Geneva: International Labour Conference, 2014. Print.
Saudi Ministry of Labour. Annual Statistics Report. Riyadh: Saudi Ministry of Labour, 2012. Print.