Category: Minimum Wage

Introduction

The minimum wage is the lowest amount of money organizations are legally allowed to pay. Even though it may appear to be obvious that raising the minimum wage is beneficial, there are some considerable negative consequences, too. Many believe that the minimum wage should be increased, and others strongly disagree. It may be necessary to evaluate possible advantages and disadvantages to develop a clear decision regarding that relatively controversial dilemma. The minimum wage is closely linked with the most financially vulnerable segments of the population. It provides people working in underpaid jobs with the required money to afford basic products and services. However, legislation that regulates minimum wage is frequently violated by organizations and businesses. Hence, it may be vitally important to not only maintain a decent rate of remuneration but also enforce compliance with the law.

Minimum Wage in Los Angeles

As already mentioned, it may be critical to evaluate the basic needs of the population precisely and provide sufficient minimum wage. In Los Angeles, the minimum wage is set to $13.00 an hour. Standard working hours are 40 hours a week and approximately 172 working hours a month. Therefore, the current minimum wage provides workers with $2,236 monthly and $26,832 annually. Considering housing prices, rising demand for basic products, and increasing expenditures, such a wage may not meet the basic needs of an average person. Moreover, it may be beneficial for Los Angeles County in terms of socioeconomic aspects. Minimal wage is closely linked with the quality of life and labor productivity. The state of California should consider increasing the minimum wage as it may improve standards of living, positively influence wages in general, maintain the economy by increasing demand, and ensures fair pay for low-income workers.

Minimum Wage and Standards of Living

It is believed that a higher minimum wage may significantly improve the quality of life. It may also be supported by the fact that most metrics designed to measure standards of living consider minimum wage. The “fight for 15” movement consistently gains momentum and drags more and more attention in North America. The movement was started to achieve the goal of increasing the minimum wage to $15 (Caleb). Minimum wage, indeed, might be an essential part of programs, which aim to improve quality of life. First, well-paying jobs provide access to better food quality, proper housing, and education (Caleb). Moreover, citizens may access adequate health care. People may be able to not only visit healthcare facilities more often but also access a higher quality of medical services. These life improvements, in return, may positively influence the economy. A worker with access to decent nutrition and healthcare may be absent from work less frequently. Access to education may provide the state with needed specialists and a highly educated workforce. General happiness rates and contentment with life quality may also increase the productivity of employees.

Higher minimum wages are frequently an indicator of developed countries. It may not only improve the quality of life but also provide the economy with highly productive labor. It may be necessary to address the issue of underpaid jobs to achieve these goals. Moreover, introducing strict regulations and inspections to prevent violations of labor legislation may be beneficial. In many cases, increasing minimum wages do not provide visible improvements due to insufficient enforcement of labor laws.

Minimal Wage Influence on Wages

Minimal wage rates have a significant impact on the economy in general and particularly on median wages. A rapid increase in minimum wages may have unpredictable and even disastrous consequences. Costs, prices, and wages are closely linked and considerably depend on one another. Studies have shown controversial results regarding the influence of minimum wage on the labor market (Grau Veloso et al. 3). Nevertheless, most of these studies prove that minimum wage is directly proportional to median wages and mean wages, even though the ratio depends on a wide variety of factors. It may be essential to take the fact that everything is connected in the modern economy into consideration. A hasty increase in minimum wages will inevitably lead to higher costs for organizations and businesses. Higher costs will influence the prices of products and services provided by these companies. Higher prices may provide growth in money flow and increase wages in general. However, increased prices may also directly affect the purchasing power of the population and require further raises of minimal wages to maintain decent life quality.

Such a “vicious cycle” may provide very little benefit to the population and cause hyperinflation. Hence, it may be necessary to conduct a comprehensive analysis and evaluate as many aspects as possible to determine the optimal minimum wage. Even though it may represent a complicated and time-consuming process, it may be beneficial for the majority of the population. From that perspective, the primary function of minimum wage may be to prevent the depreciation of labor and maintain financial equality without harming the principle of competitiveness. Determining minimum wage should represent a balance between these two opposing aspects.

Effect of Minimum Wage on Economic Growth

Raising the minimum wage may significantly contribute to the development of the economy. As mentioned before, various economic aspects are closely linked. For example, increasing the minimum wage may lead to higher consumer spending. Low-income employees tend to spend a higher percentage of additional payments than people with higher income (Pettinger). Therefore, most of the money spent on raising the minimum wage will return to the economy as a buying force. Higher spending may significantly increase money flow and boost economic growth. Nevertheless, it may also be possible that higher minimum wages increase unemployment. It is believed that organizations may reduce the number of employees to lower labor costs if the minimum wage is increased. Such correlation is debatable as higher minimum wages may also improve productivity and attract a broader workforce reducing unemployment (Pettinger). Experience in other countries has shown that, in reality, unemployment is in inverse proportion to minimum wage. Increasing employment is another essential aspect of economic development.

Minimal Wage impact on Inequality

Minimal wage may positively influence the provision of fair payment and wage equality. Recent research has shown that there is a strong correlation between increasing the minimum wage and lowering hourly wage inequality (Redmond et al. 21). In many cases, some working activities are undervalued, and organizations provide a very small percentage of generated profit to their employees. Minimal wage may directly address that issue and prevent underpaying. It may be necessary to establish a higher minimum wage to provide equal opportunities for citizens. In addition, it may reduce poverty, which has a great destructive impact on national well-being in terms of health, economy, and labor productivity.

Possible Problems

Raising the minimum wage may also have some considerable unwanted consequences. Increasing the minimum wage at rapid rates may lead to higher inflation, which may reduce all the possible benefits to zero. In some cases, it may also cause unemployment as corporations may reduce the number of their workers. It may affect the prices and destabilize the economy, leading to insufficient supply and possible crisis. Moreover, it may result in higher labor market competition preventing younger people with less working experience from obtaining a job. Therefore, it may not always serve its primary goal of providing equal working opportunities. However, these issues are mostly related to excessive and inappropriate raises in the minimum wage. Taking various aspects into consideration, carefully analyzing the labor market, and developing a comprehensive legal framework may prevent these potential problems from occurring.

Conclusion

Minimal wage is an important norm that prevents work undervalued. Current standards existing in Los Angeles may provide insufficient legal support for workers with low income. These people may not be able to afford basic needs, decent housing, or healthcare. Hence it may be needed to increase the minimum wage in the state of California and Los Angeles in particular. Such legislative improvements may not only positively influence the economic aspects of the region but also maintain various social benefits. It may bring the standards of life to a higher level and increase the average income of citizens. Economy development and a decrease in poverty also represent possible consequences. Even though such decisions are controversial and there is a large number of potential problems, the harm may be minimized by a detailed analysis of the market before the implementation of legal frameworks. Conclusively, increasing the minimum wage in Los Angeles may be beneficial in many sectors of society and should be considered on a governmental level.

References

Caleb, Nithya. “A Minimum Living Wage Means Better Quality of Life for Everyone.” The Edge: A Leader’s Magazine, 2017. Web.

Grau Veloso, et al. “The effects of the minimum wage on employment and wages.” (2018).

Pettinger, Tejvan. “Effect of Minimum Wage on Economic Growth, Inflation and AD/AS.”Economics Help. 2019. Web.

Redmond, Paul, et al. “The Impact of a Minimum Wage Change on the Distribution of Wages and Household Income.”Institute of Labor Economics, 2019. Web.

Introduction

The minimum wage for non-skilled workers is a complex and strenuous political and economic issue. This paper will examine the perspectives and priorities for involved stakeholders and how the conflicting views affect state legislation such as the H.B. 290 in Texas.

Center for Public Policy Priorities

The key argument for the Center for Public Policy Priorities is that minimum wage increases are an overdue measure to help working-class individuals and families. Since the cost of living has continued to rise over the years while wages stagnated, it creates a dangerous situation where Texas residents are faced with poverty despite having a full-time job and working diligently. The key objectives for a lobbyist for the organization would be to emphasize the numerous benefits to the working class while presenting arguments that changes will not be disruptive to the economy or businesses.

Texas is one of the few states that has not passed legislation increasing the minimum wage from the federally mandated $7.25. However, as of 2019, the living wage for a single adult is $11.03 an hour, and as much as $33.45 per hour with three kids. A living wage is necessary to afford essentials such as housing, food, and clothing. Furthermore, many industry workers that receive tips, which is a significant portion of the small business and restaurant industry, only receive a minimum wage of $2.13 an hour. Such a disparate gap is difficult, plunging families into poverty while businesses ultimately face high turnover rates such as 73% in hospitality (Waller, 2018). The opposition to the bill argues that the market will adjust accordingly, but it has not been over the decade since the minimum wage has been established in 2009. Furthermore, arguments that have criticized that such phasing in models such as in Seattle hurt workers is untrue according to the University of California-Berkeley’s Institute for Research on Labor and Employment which has seen significant increases in net wages in the most vulnerable wage brackets and decreased turnover while not having significant effects on a number of entry-level jobs or reduction in hours (Chen, 2017).

Lobbyists should provide research reports with appropriate facts and highlighting samples, emphasizing that the studies against minimum wage are focused on very limited or skewed samples. Testimony can be heard from minimum wage workers living in Texas describing the difficulties of working with such low wages compared to living standards. According to the organization’s research, over 2.4 million Texans or 1 in 4 workers would benefit from increases to the minimum wage to $10.10 an hour, a large majority of them being minorities or non-college-educated citizens. More than 60% would be of primes working age 25-54, with only 3.1% being teenagers, and more than 50% of the benefited population are from family households with children, including 14.7% of single mothers (Groves et al., 2015). The changes will have a sweeping positive effect to push a large portion of the population out of poverty and increase economic spending in various sectors.

Texas Restaurant Association

The restaurant industry opposes any national, state, or local legislation which forcefully or artificially increases minimum wage, even in stages (Texas Restaurant Association, 2019). The association agrees that the legislation does not reflect an economic reality that operates based on profits and available resources. An increase in minimum wage will result in the industry heavily investing in automation and reducing the number of entry-level jobs offered. Actions undertaken as part of the lobbying efforts on behalf of the Texas Restaurant Association would be to demonstrate the negative economic impact of the bill on the industry and general market forces as well as provide examples as to how similar initiatives have failed in other jurisdictions.

The restaurant industry employs the largest percentage of minimum wage workers; therefore, it will be the most affected if such is implemented. The majority of restaurants operate on various models which combine minimum wage alongside tipping. Restauranteurs value their workers and attempt to maintain competitive wages. Increasing minimum wages via mandatory legislation immediately increase payroll costs for restaurants by upward of 3%. While major fast-food chains can bear the cost, oftentimes small businesses operate at thin margins or even at a loss. Numerous associations and experts in the industry have argued that minimum wage increases result in restaurants having to reduce employee hours 64% of the time and eliminate jobs 43% of the time (Lucas, 2019). A study out of Seattle where the minimum wage was recently hiked from an already respectable $13 hour to $15, a 3.1% net increase, resulted in employee hours being cut, decreasing employee incomes by as much as $179 on average. Even with wage increases, net losses average 6.6% for workers, and despite having higher hourly rates, the minimum wage workers in Seattle lagged behind neighboring regions (Higgins, 2017). Lobbyists can bring in small business owners and restauranteurs for testimony before legislators, providing both empirical data and anecdotal evidence underlining the hard choices they will have to make with minimum wage hikes.

Multiple states have implemented legislation in recent years for gradual increases to minimum wage, which provides both objective and anecdotal data on its effectiveness. The biggest argument which favors raising minimum wages suggests that it reduces poverty and addresses income inequalities. Since minimum wage workers are typically unskilled labor working hourly jobs, these are commonly families who are at the lower end of the income spectrum. However, statistically, there is a weak correlation between low-wage workers and low-income families, due to the nature of hourly workers such as part-time, teenagers, or temporary jobs. With projected increases in the federal minimum wage, only 18% of income would reach poor families (Salmon, 2017). Meanwhile, a study from the University of California Irving found that artificially increasing minimum wages raise poverty levels in disadvantaged neighborhoods, actually growing poverty and government dependence 3% per $1 wage increase (Lawler, 2018). Unlike many other studies on the issue, this research provided a long-term 4-decade examination, assessing changes after the short-term economic growth which may occur, but then falls off significantly as other aftereffects mentioned earlier such as price hikes are unavoidable. A lobbyist can provide reports and statistics to back up this data and present it to the legislators arguing against this heavy-handed and ineffective approach to combatting poverty.

State Legislator

As a state legislator, one must consider both the interests of the businesses and economy and the interests of the everyday workers. This is a complex issue that requires the examination of empirical data and statistics, particularly in jurisdictions that have seen increases in minimum wages. While research is critical, practical data is seemingly more important. Furthermore, testimony from business owners and workers is essential to comprehending the human element in this decision. Furthermore, it is important to consider the national trend which is spreading across the states, including many Republican and conservative states of gradually increasing the minimum wage, with a potential federally mandated increase coming as well with upcoming elections.

The best approach would be to strike a balance between the two sides. It is evident that the mandated minimum wage is not nearly enough for a living wage in the state of Texas, so some increase is warranted. Currently, the HB 290 bill proposes a gradual increase in the minimum wage to $10.10 an hour by 2024 (Thompson, 2018). However, to spare small businesses, the hike can be mitigated in several ways. 1) State funds can be allocated to support small businesses in a transition period of up to 2 years if they do not cut entry-level jobs. 2) The gradual increase in minimum wages can be extended over a greater amount of years, to make the transition easier for businesses. If businesses have to raise prices to accommodate, they can do so more gradually as well. 3) Provide exemptions for small businesses with under 10 employees until 2024 as long as at least federal minimum wage is paid out alongside tips, with the assumption that internal wages will increase to remain competitive. These are proposed balanced solutions to amending the bill. The controversial nature of the minimum wage issue requires a practical approach that considers both sides of the argument, and legislators should view it as such; an opportunity to negotiate in the long-term.

References

Chen, M. (2017). No, Seattle’s $15 minimum wage is not hurting workers. The Nation. Web.

Groves, G., Lee, J., & Strandberg, K. (2015). It’s time to raise the minimum wage in Texas. Web.

Higgins, S. (2016). Study: Seattle’s minimum wage is hurting the poor. Washington Examiner. Web.

Lawler, J. (2018). Higher minimum wages increase poverty in poor neighborhoods, study finds. Washington Examiner. Web.

Lucas, A. (2019). Higher minimum wage means restaurants raise prices and fewer employee hours, survey finds. CNBC. Web.

Salmon, J. (2017). Minimum wage hikes fail to benefit low-income families. The Hill. Web.

Texas Restaurant Association. (2019). TRA members take to Capitol Hill. Web.

Thompson, S. (2018). HB 290. Web.

Waller, A. R. (2018). As most states raise their minimum wages, Texas refuses to budge. The Texas Tribune. Web.

Numerous research studies have been conducted on the effects of increasing the minimum wage for low paid workers. These findings are part of an ongoing debate amongst economists on the rationale of increasing the minimum wage and the likely effects on a country’s economy.

Amidst the debate, there seems to be a general consensus that increasing the minimum wage for low wage earners does not have any effect on employment rates. However, this rule seems only applicable selectively, since there are indications of job losses within the British home care sector after the introduction of the National Minimum Wage.

This paper evaluates the theoretical assumptions regarding the effects of the introduction of the National Minimum Wage within the British home care sector.

According to Metcalf (2004, pp. 84-86), the National Minimum Wage was introduced in 1999 with the aim of protecting about 1.8 million workers from exploitation by employees. Metcalf (2004, pp 84-86) further asserts that concerted efforts have been made since then to progressively increase wages paid to employees per hour.

Initially, the minimum wage increased at the same rate as the Average Earnings Index in the late 1990s. However, at the turn of the 21^st century, the rate at which the National Minimum Wage grew started accelerating.

By the end of 2004, the National Minimum Wage had doubled the Average Earnings Index (Metcalf, 2004, pp 84-86). In this case, employers were required to pay their employees a minimum of £ 4.85 per hour. A rise in payments rates had a significant direct impact on the earning at “the bottom of the pay distribution” (Metcalf, 2004, pp 84-86).

This however, did not have any impact on the average employment rates. However, minimum shocks were felt across the British homecare sector.

Borjas (2010) focuses on labor economics especially with regard to the demand and supply of labor, and how it is affected by an increase in minimum wage. In his book, Borjas (2010) agrees with Metcalf (2004) and argues that there might be signs of increased unemployment as a result of an increase in minimum wage.

However, this creates a false impression since on average there is no indication of rise in unemployment resulting from an increase in minimum wages. For instance, Borjas (2010, pp 126) argues that teenage employees did not lose jobs in a majority of states such as California when the minimum wages were introduced.

However, Borjas (2010, pp 127) further compares the increase in minimum wages between several States and notes that States such as New Jersey increased the minimum wages beyond the minimum rate required by the federal government. As a result, unemployment increased slightly in States such as Pennsylvania. However, this did not have any effects on the over-all unemployment rates.

Borjas (2010) and Metcalf (2004) focus on different markets but draw similar conclusions. In their works, the two authors stipulate that there are minor negative shocks in terms of job losses in given industries that lie within certain geographical and economic regions.

However, such job loses do not have any significant effects on the average rate of employment due to a combination of factors. Borjas (2010, pp 118) cites the demand and supply of labor economics as one of the factors which mitigates the expected loss of jobs as a result of increase in minimum wage.

Additionally, Metcalf (2004, pp 84-86) adds that the implications of increasing the minimum wage are offset by a reduction in working hours, incomplete compliance with the National Minimum Wage requirements , enhanced employee productivity through training as well as reduced profitability from firms.

Metcalf (2004, pp 84-86) asserts that the increase in the minimum wages has significant effects on reduction of employment opportunities within Britain’s homecare care sector.

Such findings are also enumerated by Machin and Wilson (2004). According to Card and Krueger (1995, pp 1, 5) any increase in minimum wages has an immediate and direct impact on the average employment levels for low wage earners. This is because if wages are increased, unskilled laborers will be priced out of the job market.

This is necessitated by the fact that those employees whose skills only qualify for wages below the required minimum wage become unemployable. As such, they either become unemployed or are completely ousted from the labor market (Card and Krueger, 1995, pp 6). Such machinations are explained through the demand supply of labor model, as described in the diagram below.

The effects of the National Minimum Wage are also analyzed using the difference-in-difference model. The difference-in-difference model uses a cross sectional comparative approach.

The effects of introducing a variable are analyzed by evaluating the conditions before and after the introduction of the said variable. Notable effects are then recorded (Card and Krueger, 1995, pp 12).

Card and Krueger‘s (1995) asserts that some employees lose their jobs as a result of an increase in minimum wages. These findings seem to concur with Machin and Wilson (2004) findings on studies conducted within Britain’s home care sector.

Machin and Wilson (2004, pp 102) begin by asserting that, generally, the increase in the rate of minimum wages earned by minimum wage earners has significant positive effects to the economy, the employer as well as the employees.

Surveys conducted on the level of employment rates before and after the introduction of the National Minimum Wage did not indicate any negative effects on the employment levels. On the contrary, data studied indicate that on average employment rates had shown an upward trend in before the introduction.

Additionally, the upward trend in employment levels continued during the post introduction era. Further upward adjustments to the minimum wage did not show any downward shift in employment rates.

Furthermore, wages earned by a significant number of minimum wage earners, in a majority of the sectors within the British employment industry increased. As a result of the notable positive effects, the minimum wage was revised upwards several times (Machin and Wilson, 2004, pp 102).

While this had major economic benefits, the rise in minimum wages had negative effects on some sectors which are susceptible the dangers of altering minimum wages (Machin and Wilson, 2004, pp 102).

This implies that employees who were previously employed in sectors vulnerable to adjustments of the minimum wage lost jobs immediately the National Minimum Wage was introduced. Such sectors include the British homecare sector. The sector was chosen for this study for a number of reasons.

To begin with, the sector pays some of the lowest wages in Britain. The sector also employs a sizeable number of employees, thus data studied would have provided valid results. Additionally, the sector has a majority of nonunionizeable employees (Draca, Machin, Van Reenen, 2006, pp 10).

According to Machin, Manning and Rahman (2003, pp 154) the introduction of the National Minimum Wage had a series of effects which culminated in loss of jobs within the British homecare sector. National Minimum Wage led an immediate increase in the wages earned by a majority of homecare employees.

Using the difference-in-difference model, Machin and Wilson, (2004, pp 102, 103) compared the amount of wages earned before and after the introduction of National Minimum Wage and found major differences. During the pre introduction period (Machin and Wilson, 2004, pp 102) found out that the average employee within the British homecare sector earned below £ 4 per hour.

However, studies conducted post introduction period indicate that the minimum wage for employees within this sector were kept at £ 4.85 per hour. This implies that the wage distribution was readjusted downwards. Consequently, homecare employers had to face increased wage bills.

This had positive effect since it effectively reduced wage inequality. However, such effects were significantly diluted since homecare owners had to readjust to accommodate reduced profits.

As found out by Machin, Manning and Rahman (2003, pp 155) and Machin and Wilson (2004, pp 104) the National Minimum Wage had a direct impact on the number of hours per employee. Employers, to curtail the increase wage bill, had to develop ways to maximize profits.

As such, labor utilization was reevaluated so as to increase productivity. One such method was to award the minimum wage per hour, but reduce the amount of hours worked. This indicates that during pre introduction period, employees worked for longer hours while during post introduction period, employees worked shorter hours.

Machin and Wilson (2004, pp 104, 105) further postulates that the increase in wages and the subsequent reduction in the number of hours worked had a direct impact on the levels of employment. Before the National Minimum Wage was introduced, any individual was employable within the British homecare sector.

However, post introduction survey indicates that only those employees with skills that warranted the minimum wage requirement qualified for jobs. As such, there was a slight increase in the levels of unemployment during the post introduction period.

Machin and Wilson (2004) uses the difference-in-difference model which utilizes the cross sectional methods of study. This implies that the study was limited to a specific time. As such, the long term effects of the introduction of the National Minimum Wage cannot be ascertained.

This necessitates a longitudinal study, which would study the whether the introduction of National Minimum Wage has any long term effects on unemployment. Additionally, Machin and Wilson (2004) survey focused on the British homecare sector, implying that the results are only applicable to this sector. As such, further studies need to be conducted in other sectors to validate these findings.

The introduction of the National Minimum Wage had a number of interrelated effects. The national minimum wage resulted to an immediate rise in wages earned by low wage earners. This lead to an immediate reduction in hours worked for every employee.

In general, this did not have any significant impact on employment. This is because the demand of labor is influenced by a number of factors.

However, there are some sectors which are vulnerable to adjustment in minimum wages. This includes the homecare sector, which recorded slight increase in unemployment rates. However, further studies needs to be conducted to validate whether such effects are long term or short term.

Reference List

Borjas, G., 2010. Labor economics. London: McGraw-Hill/Irwin.

Card, D., & Krueger, A., 1995. Myth and measurement: the new economics of the minimum wage, Princeton: Princeton University Press, pp. 1, 6-7.

Draca, M., Machin, S., & Van Reenen, J., 2006. Minimum wages and firm profitability. Web.

Machin, S., Manning, A., & Rahman, L., 2003. Where the minimum wage bites hard: introduction of minimum wages to a low wage sector. Journal of the European Economic Association, Vol. 1, No. 1, pp. 154-180.

Machin, S., & Wilson, J., 2004. Minimum Wages in a low-wage labour market: Care Homes in the UK. Economic Journal, Vol. 114, pp. 102-109.

Metcalf, D., 2004. The Impact of the National Minimum Wage on the pay distribution, employment and training. Economic Journal, Vol.114, pp.84-C86.

Salaries, wages and compensations are supposed to be sufficient to cater for a worker’s basic and personal expenses. As much as it is appreciated that there is no adequate income because human needs are insatiable, low-earning workers in different parts of the world faces similar economic and social welfare problems (Starr158). This paper discusses the major problems facing low earners.

Housing and homelessness

Low earner hardly afford good housing; they live in houses that do not meet the standards of an adequate housing systems, the reason why they opt for such houses is because they have limited funds to pay for houses in with good amenities. when in the houses, they lack security, they do not have steady supply of water and electricity. To the extreme, mostly in the developing countries, they live in informal settlements where they are exposed to diseases, social crimes and high rate of crime.

Health services

Low wage earners have a problem accessing quality, timely and reliable health care services; this is so because of their location that may not have a health facility and when the facility is there, they cannot afford the costs charged comfortable.

It has been noted that low earners have a higher tendency of giving birth to more children; the demand for health services for pregnant mothers and children are high thus maintaining quality health care services becomes an issue (Morley 1915).

Nutrition problems and clothing

Food and clothing are human basic needs that costs a fortune, low earners do not have the adequate funds to afford good nutrition; they depend with the affordable foods which might not be of the right nutritional level.

Lack of good food retardates their growth late and leads to nutritional related disease like kwashiorkor and miasmas. When the population is suffering, then they can hardly think straight thus, they continue to ravish in poverty.

Cloths define the character of a person to some extent; when the people are not able to afford proper clothing; they suffer from psychological stress since they feel they are not respected in the community; on the other hand, the communities may judge them harshly from how they look. To satisfy the need for proper clothing, low earners buy second hand cloths that have their complications.

Lack of social Amenities

The locations that low-earners life are not well addressed as far as social amenities are concerned, most governments hardly provide adequate amenities like playing fields, fire fighters, roads , schools, colleges or even Universities. The main reason for lack of the facilities is that there is no space or the available amenities are stressed that they are not doing any good to the communities.

In some cases where the services have been developed, the great number of people looking forward to use them overwhelms them. For example in slums, in case of fire, local councils efforts to assist communities is mostly hampered by lack of way as people have build along and on roads that the fire fighting machines cannot pass (Avraham and Roter 56-67).

Conclusion

Different countries have different minimal wages rates; however low earners face similar problems, the problems include housing and homelessness, poor nutrition and clothing, lack of social amenities, poor health services, and unequal distribution of resources. To solve the above problems, governments should ensure it looks into individual challenge on its own and seek a lasting solution.

Works Cited

Avraham, Doron, and Roter Raphael. Low wage earners and low wage subsidies. Michigan: Hebrew University press, 1978.

Morley, Gunderson. Minimum Wages: Issues And Options For Ontario. Ontario Ministry of Finance, Feb. 2007. Web.

Starr, Frank. Minimum wage fixing: an international review of practices and problems.London: International Labour Organization, 1981

The minimum wage was introduced as an effective strategy of achieving social justice and controlling poverty and unemployment. The first minimum wage was established in the United States more than one hundred years ago. However, economists did not support this innovation.

Moreover, nowadays many scholars claim that the effectiveness of the minimum wage is doubtful. They argue that instead of decreasing the rate of unemployment and poverty the minimum wages contributes to the development of these negative economic phenomena.

Thus, at present the effectiveness of minimum wage is very disputable. There are many economical, political and moral arguments for and against the minimum wage. It is necessary to add that this measure becomes less popular each year. Nevertheless, while considering the effectiveness of the minimum wage it is important to point out that it is helpful for the society especially when it is supported by other social measures since it secures the rights of workers and solves a number of social problems.

The major economic argument against the minimum wage is that it contributes to the development of unemployment among the most “vulnerable” groups of workers such as low skilled, young, female workers since they cannot compete with skilled workers who are likely to get a job (Cunningham 3).

Thus, many economists argue that the most vulnerable groups of workers have less job opportunities. However, the minimum wage can be a good stimulus for young people to continue their study instead of joining the “labor market”, and this is very good for the development of society since it leads to the higher rate of educated people in the “labor market” (Cunningham xiv).

Another economic argument against the minimum wage is that it contributes to poverty increase. Some economists claim that the majority of workers who gain the minimum wage are young people who live with their parents and do not really support the family (Waltman 15).

Thus, people who really live in poverty do not get support from this social measure and, basically, the minimum wage does not reduce the poverty but contributes to its development. However, there are still a lot of workers (especially in developing countries) who have to support themselves and their families, and thus have to rely on the minimum wage. The minimum wage is especially helpful for the developing countries since many groups of workers can be secured by the minimum wage (Cunningham 3).

There is one more argument suggested by opponents of the minimum wage. They argue that the minimum wage often has “adverse longer-run effects on wages and earnings” and can lead to inflation (Neumark and Wascher 7). Thus, when higher minimum wage is introduced the spending power of people increases, and this leads to the rise of prices, and this is the conventional pattern for the development of inflation (Waltman 15).

However, this argument cannot be regarded as the crucial one since many factors influence the increase of inflation which should be regulated. Basically, it is possible to state that the existence of money contributes to the development of inflation, but this assumption is unlikely to cause money abolishing.

The points mentioned above are the major arguments against the minimum wage. However, there are many arguments for the minimum wage. It is possible to point out the major ones in order to prove that the effectiveness of the minimum wage cannot be underestimated.

The first argument is more political than economical and it is concerned with the reduction of poverty (Waltman 13). The minimum wage can be regarded as one of few strategies which are effective in terms of poverty reduction that “requires no commitment from taxpayers” (Waltman 13).

Thus, the state does not need to finance this social measure, since the major responsibility lies on employers. One more economic argument for the minimum wage is that it increases productivity since employers are interested in the development of their human resources (Waltman 12).

Thus, workers get training, the productivity increases and, as a result, more jobs appear, and this leads to the development of society. Of course, the minimum wage also increases purchasing power of people is also good for the development of economy.

Apart from economic arguments for the minimum wage there are many moral arguments (Waltman 9). The major moral argument for the minimum wage is that it secures justice in the working place. Workers can be sure that they get fair salary for their labor. Employers will not be able to make use of workers’ hardships. Another moral argument is as follows: the minimum wage helps reduce poverty and secure that the least protected groups of people will not starve.

Finally, it is possible to provide the moral argument for the minimum wage which “is concerned with democratic citizenship” (Waltman 11). Thus, people should have equal rights and the necessary economic opportunities to “exercise their political rights and obligations responsibility” (Waltman 11). Apparently, the minimum wage is an effective measure which secures justice.

On balance, it is possible to conclude that though the effectiveness of minimum wage is very disputable, there are too many arguments supporting its exclusive role in the development of societies. So, it is impossible to underestimate the importance of this social measure.

Works Cited

Cunningham, Wendy V. Minimum Wages and Social Policy: Lessons from Developing Countries. Washington: World Bank Publications, 2007.

Neumark, David, and William L. Wascher. Minimum Wages. Cambridge, MA: MIT Press, 2008.

Waltman, Jerold L. Minimum Wage Policy in Great Britain and the United States. New York: Algora Publishing, 2008.

Abstract

Inelastic products are those whose prices are not affected by demand and supply. For companies to ensure that their products are as inelastic as possible, they must differentiate them. The government can intervene in a free market economy through regulation of taxes and establishment of policies which govern such things as minimum wage, licensing of businesses and provision of subsidies for particular products or services. For companies to deal with the complexities of capital projects, they must take insurance cover for their businesses. In order to realize a convergence of the interests of shareholders and managers, companies may come up with a policy to ensure that managers’ pay is based on the profits made by the companies.

Keywords: Inelastic, Minimum Wage, Capital Projects.

For managers in the low-calorie microwaveable food company to ensure that their products are as inelastic as possible, they must choose a pricing strategy which keeps their customers attracted to their products. At the same time, the pricing strategy should also discourage the customers from going for substituting products. But before the pricing strategy is put in place, the managers of the company must ensure that their products are highly differentiated or there are very few companies dealing with the same products.

Once the managers succeed in this, they should settle for a price which is commensurate to the levels of the income of the customers. They should also consider the demand of the products as well as the cost of production. Once they have considered all this, they should set a fixed price for the products. This would ensure that the price does not affect the demand of the products. To achieve this, however, the managers must ensure that they have reliable supplies of raw materials so that the company would not face shortage of raw materials for the products at any given time. The company also needs to have a low employee turnover so as to ensure that the cost of production would not increase at any given time due to reliance on part-time labor which is more expensive than permanent labor.

In a free market economy, the government plays very minimal roles. The market is usually left to regulate itself through the forces of demand and supply. This happens mostly in capitalistic economies where economic development is based on the cost of production which constitutes labor, raw materials and time required for the production process. Sometimes, the government may intervene by imposing price controls. However, these may not be attractive to the government because they compel it to cater for some costs in the production of certain products and services.

Another policy, which the government may have in the regulation of a market economy is the regulation of the amount of tax levied on products and services. The government can also have policies on minimum wage, the number of hours which employee should work in a day and the number of days which employees should take off from work. Some governments may propose a 24 hour economy where businesses operate day and night. Others may have policies which require businesses to operate only during the day. Governments can also have policies on provision of goods and services through subsidies which help in reducing the price of some targeted products and services (Rowley & Schneider, 2004).

One effect that government policies have on production is the increase in the cost of producing goods and services. If, for example, the government decides to increase the taxes levied on products and services, then the businesses are compelled to roll out the increased taxes to the consumers through increasing the price for the affected products or services (Welch & Welch, 2009).

Government policies can also accelerate or slow down the production process for particular products and services as well as reduce or increase the cost of doing business in a country. If the government streamlines the procedure of getting a businesses permit, then it becomes easy to establish businesses in that country. If, on the other hand, the licensing of businesses is bureaucratic, then it takes longer to establish a business thus increasing the cost of doing business in that particular country.

In terms of employment, government policies can affect the number of employees in businesses. If the government comes up with a policy on minimum wage, then businesses may be forced to reduce the number of employees so as to reduce the cost of labor. In situations where there are no policies on minimum wage, businesses can benefit from cheap labor, which is also regulated by the forces of demand and supply.

If there are many unemployed people in a country, then labor is likely to be cheap and this is where a policy on minimum wage can negatively affect businesses because they must pay the employees according to the minimum wage set by the government. If, on the other hand, the supply of labor is low, the cost is likely to be high and therefore, the policy on minimum wage may not be applicable for businesses in that country.

One potential effect that government policies could have on my company is the increase in the cost of production through increased taxes levied by the government. This could affect the company’s profit margins because the prices for the differentiated products could not be increased as mentioned earlier. What the company can do in such a scenario is to open branches in other countries, where there are little or no political, economic and social risks.

I think that it is not necessary for the government regulation to ensure fairness in the low-calorie microwavable food industry. The reason is that such an industry is capable of regulating itself, because the issue of diet is a matter of lifestyle and personal choices, but not a matter of uniformity. Each individual has his or her own lifestyle and therefore, the government should not regulate the amount of calories in food stuffs, but it should leave the people to decide the amount of calories they need in their food stuffs.

If people do not prefer low calorie food stuffs, then those companies which sell them would be out of business by default. If, on the other hand, people prefer food stuffs with low calories, then those companies which deal with high calorie food stuffs would be out of business and for these reasons, the industry would attain self regulation and there would be fairness.

The major reason for the government’s involvement in a market economy is to ensure that there is equity and social efficiency. In order to ensure equity, the government can intervene to ensure that resources are distributed equally within the entire population. In a market economy, the supply of certain products and services can be skewed. Such products and services may include health, education and emergency preparedness and response products or equipment. Even though these products and services can be offered in a free market economy, the government may come up with a policy to regulate the provision of such services and products to ensure that all people are able to access them irrespective of their social and economic status (McGuigan, Moyer, & Harris, 2014).

In order to ensure social efficiency, governments may intervene to ensure that the marginal benefits of a business to the society are commensurate with the marginal cost of production. This is done to ensure that businesses give back to the society. For example, a mining company must ensure that it gives people enough compensation for social and economic impacts of the miming project. Another example is an irrigation project. The government can intervene to ensure that the company which undertakes the irrigation project does not import labor from other areas but it employs the local people so that they may benefit from their proximity to the irrigation scheme.

Capital projects are those which require huge amounts of financial capital and labor to start or maintain. Their defining characteristic is the intensive use of resources and time. One major complexity associated with expansion through capital projects is the allocation of resources for the project activities. Sometimes, it can be very hectic to allocate resources accurately for the project without leaving some important activities unfunded (Morris & Pinto, 2011).

Another complexity is the management of risks associated with such projects because of their magnitude. If a mistake happens and the projects do not succeed, then the impacts of such failure may be very detrimental to the owners of the projects.

In order for the low-calorie microwaveable food company to address these complexities, it needs to invest a lot of resources in the planning of the capital projects. Having a clearly thought out plan can ensure that everything is done in the right way. Proper planning would also ensure that all stakeholders are involved in the project design and are also given sufficient details about the projects.

The other way is taking insurance for such projects. This ensures that in case the projects do not succeed, the company could recover some of its financial capital invested in the projects.

In many companies, the interests of the stockholders and the managers are always divergent. While the stockholders are mainly interested in more profits and dividends, managers are interested in increasing revenue so that they could enjoy more benefits.

The best way to create a convergence between the interests of stockholders and managers is by coming up with policies which require managers to be paid based on the profits generated by the company. The stockholders could set profit targets for their company which it must attain so that the managers could be paid certain amount of salary and benefits. In the policies it should be stated that if the managers do not meet the targets, they should receive less pay and enjoy few benefits. This would ensure that the managers focus on increasing profits, but not revenue. Consequently, the company would have higher profits. If the managers do not meet the set targets, they could also be threatened with termination of employment or with threats of selling of the company.

For example, the chairman of Shell Oil Company was threatened with dismissal in 2004. As a result, the company was brought back on track and started generating more profits. The other example is that of a planned takeover of P&O Princess by Carnival. This takeover is aimed at threatening the directors of P&O Princess to ensure that the company increases its profit margins (Ujsme, 2007).

References

McGuigan, J. R., Moyer, R. C., & Harris, F. H. (2014). Managerial economics: applications, strategies and tactics, (13th ed.). Stamford, CT: Cengage Learning.

Morris, P., & Pinto, J.F.(2011). The Wiley Guide to Project, Program, and Portfolio Managemen. Hoboken : John Wiley & Sons.

Rowley, C. K., & Schneider, F. (2004). The encyclopedia of public choice. New York, NY : Springer Science and Business Media LLC.

Ujsme, K. (2007). Conflict of Interest between Managers and Shareholders. Web.

Welch, P. J., & Welch, G.F. (2009). Economics: theory and practice. Hoboken, N. J.: John Wiley.

The issue of minimum wage increase has been one of the most debated in the last few years. Low-paid workers have protested against minimum wages which have not been adjusted for inflation for several years. While low-paid workers argued that meager pay practices put them on the verge of poverty, economists argued that such an increase will result in mass layoffs. Although minimum wage increase to $15 per hour may result in a lower number of vacant positions, it should be raised as it will positively affect the United States economy.

Low minimum wages cost the United States government billions of dollars. A lot of discussions are centered on the economic impact of the minimum wage increase. While minimum wage increase will, obviously, require businesses to pay their workers more and will require businesses to find new ways to compensate for increased expenditures, the economy, in general, will benefit from such an increase. While increasing the minimum wage is costly for businesses, not increasing the minimum wage is costly for the United States government.

Individuals who earn less than $18,000 a year cannot meet their basic needs and get compensated by the government (Owens par. 1). In spite of the fact that they are employed, current hourly rates are not enough to allow them to buy food, clothing, medications, and other necessary things. It is the government’s responsibility to provide competition for the poorest populations. Such compensation may come in the form of food-purchasing assistance or medical care coverage (Owens par. 4).

The United States government initiated such programs, as the Supplemental Nutrition Assistance Program (SNAP) to provide benefits for families with low income. A family living on the current minimum wage will be eligible for such program (Owens par. 4). Another issue to consider is health care. Low-income individuals cannot afford health coverage, and many of them do not pay for medical services in full. As a result, the United States government is responsible for covering these expenses. Uninsured individuals cost the United States $49 billion each year (Kennedy par. 2). Companies which pay workers less than $15 an hour simply offload their payroll expenses onto the United States government.

Raising minimum wage will reduce poverty with no significant effect on employment. Those against minimum wage increase argue that if such increase takes place, it will result in higher unemployment due to mass layoffs initiated by businesses to compensate for increased costs. The opponents of the increase argue that businesses will have no choice but to employ fewer workers. However, studies suggest that measured employment effects of minimum wage increase are very small due to a variety of factors in play (Schmitt 1). Businesses can cope with increased minimum wage through “improvements in organizational efficiency; reductions in wages of higher earners (“wage compression”); and small price increases” (Schmitt 1).

This fact means that if the minimum wage is increased, businesses will have to choice but to improve its operational performance and reduce wages of their top managers, who, sometimes, earn millions of dollars annually. While minimum wage increase has no employment response, it does help eliminate poverty. Currently, many employers pay low minimum wages simply because they can. If businesses were allowed to pay even less, some might even pay lower wages. As a result of such practice, many families are struggling financially and cannot afford many things due to the high cost of living in the United States. In order to reduce poverty, it is necessary to increase minimum wages to $15 an hour.

Since companies will be required to pay low-wage workers at least $15 an hour, more of these people will be able to afford better food and clothing, and be able to buy pharmaceuticals and offer some kind of medical coverage. By and large, businesses have no interest in keeping low-paid workers above the poverty line. Low-paid workers are typically people who lack the skills required for better jobs or a struggling financially. As such, they have no choice but to work for the minimum wage. It is the government’s responsibility to oversee the relations between the employer and employees, as it is in the government’s best interests to reduce poverty and improve the well-being of its citizens.

The issue of raising minimum wage level is a complex one and requires careful examination. While the necessity of minimum wage increase is not universally accepted, much of the opposition seems to come from business owners who are interested in keeping their profits high. The United States government has to recognize the needs of its citizens and work towards eliminating poverty and improving the quality of life. Minimum wage increase is a step forward in this direction.

Works Cited

Kennedy, Kelly. Up to $49 billion unpaid by uninsured for hospitalizations. 2011. Web.

Owens, Christine. Wal-Mart CAN afford $15 minimum wage. 2016. Web.

Schmitt, John. Why Does the Minimum Wage Have No Discernible Effect on Employment? 2013. Web.

Introduction

A minimum wage rate is the lowest price at which labor can be bought and sold in the labor market. It is usually set by the government to protect the suppliers of labor. For a minimum wage rate to be effective, it must be more than the market clearing price at which labor is being supplied and the supply of labor has to match with the demand of labor (Ackerman 23).

Labor is a resource which is highly demanded and therefore its demand is inelastic. The impact of the minimum wage rate will therefore depend upon the substitutability of capital for labor. If capital is easily substituted for labor then the minimum wage rate will have a small impact and vice versa.

The impact will also depend on whether the wage rate is greater or lesser than the market clearing price and whether the economy will be booming or in recession. Most minimum wage policies are usually local or national but there can also be an international minimum wage where countries want to exploit the third world cheap labor

Thesis

The paper will examine several theories on minimum wage such as the history of minimum wage and how it came about or how and why it was formed. It will also look into detail the minimum wage law, what it proposes or what it says should be done, look at the minimum wage that is informal and why it is informal. The paper will also look into detail and explain the considerations that are taken when fixing an initial minimum wage.

The paper will also determine the reasons why the minimum wage is important to a nation and the reasons why minimum wage rate should not be constituted in a country. The paper will then conclude by giving a general view on minimum wage and giving a position on whether minimum wage is good or bad

Theory of minimum wage

The first minimum wage was first proposed to prevent the exploitation of those who were working in the manufacturing industry. The industry had women and young workers as its major employees and it was paying those wages which were below standard (Ackerman 30).

The employees were thought to have an unfair bargaining power over their employees and therefore a minimum wage was proposed to protect the employees and make the employers pay fair wages. The focus of the minimum wage rate then changed from making employers par fair wages to making families to become self sufficient. Minimum wage has a social appeal because it ensures that markets provide equality in income.

The goals of the minimum wage are widely accepted as proper because it protects many people. There is however a great concern of whether the minimum wage is effective in achieving its goals. The minimum wage rate varies among different countries. This is because of the differences in the jurisdictions of these countries (Ackerman 21).

The minimum wage varies on bases of setting particular wage amounts and also on the basis of the payment periods. For example US Federal Law requires the minimum wage to be eight dollars in the state of Washington and in United Kingdom it is six Euros per hour (Low Pay Commission 32). Sometimes a minimum wage can exist without a law. This is called the informal minimum wage.

An informal minimum wage usually comes about when there is pressure from labor unions and other unions fighting for the right of workers (Low Pay Commission 41). These pressures usually lead to a minimum wage rate set without a lot of legal processes.

When determining the minimum wage rate, certain considerations must be put in place. One of the considerations is that the loss of jobs should be minimized by the minimum wage and at the same time international competitiveness of labor should be maintained.

Other considerations that should be put in place are the economic conditions, the demand and supply of labor, the levels of wages, the costs of labor, and operation costs of the business and the standards of living of people (Sowell 67). Political and business factors should also be considered. The market for labor is a very important consideration when it comes to minimum wages.

The labor market like any other market is usually affected by forces of supply and demand. The workers are the determinants of supply in the labor market and the firms are the determinants of demand. This always leads to a conflict when it comes to the wage rate. Governments therefore have to intervene and come up with a wage rate that favors both sides

Debate over consequences of minimum wage

There have been several debates on whether minimum wage is good or bad. Many researchers have done studies to either prove the goodness and the badness of minimum wage rate. There have been several arguments for and against the minimum wage.

Generally, the arguments for minimum wage rate have been so consistent over the years while the arguments against have been that they accomplish what they set to do but they create more problems in the process

Arguments for minimum wage rate

Minimum wage will lead to improved national productivity because it will attract a large amount of labor supply. The labor rate will be attractive and more workers will be attracted to offer their services and hence lead to an improved national productivity (Furlong 2). Another advantage is that it will lead to reduction of poverty and raise the standards of living of people.

This is because they will have a better purchasing power due to reasonable wages (Furlong 2). Minimum wage rate will also lead to decrease in occupational and income inequalities. It encourages greater equality of consumption opportunities because of the higher pay rates

Arguments against minimum wage

High wage rates usually lead to misallocation of resources and failure of markets. Many people will be motivated to supply labor but few will be demanded by the firms because they will want to minimize costs (Waltman 56). This will lead to markets that are less flexible and not competitive.

It will also lead to higher unemployment rates because firms will want to remain with few workers who they will be able to pay at the minimum wage rate. It will also lead to inflation because companies will raise their prices to try and compensate for the high wages that they are paying

Conclusion

Even though a lot of concerns have been raised on the effectiveness and impact of minimum wage, it has still proved to be desired by most countries. This is because without the supply of labor, there will not be any production activities going on in the country.

The supply of labor therefore has to be enticed with higher wage rates. The rates of unemployment however has been a barrier to the minimum wage rate because people who are desperate for jobs will work at any wage rate that the firm is offering and hence limiting the effect of the minimum wage rate. I still think that minimum wage should be imposed on any labor market

Works Cited

Ackerman, Frank. The political economy of inequality. California: Island Press. 2000. Print

Furlong, Frederick. Minimum wage rate. San Francisco: Federal Reserve Bank Research Department. 1988. Print

Low Pay Commission. National Minimum Wage: Low Pay Commission Report 2006. New York: The Stationery office. 2006. Web

Sowell, Thomas. Basic Economics: A Common Sense Guide to the Economy. Boston: Basic Books. 2010. Print

Waltman, Jerold. The politics of the minimum wage. Illinois: University of Illinois Press. 2000. Print

The minimum acceptable remuneration that an employer should pay an employee has been a source of contention among diverse parties with conflicting opinions about the importance and drawbacks of laws on minimum wages. Pursuance of regulation on wages in the 19^th century set the stage for the formation of trade unions and other bodies that seek to protect the concept of controlled wages.

Major aspects of focus concerning the minimum wage revolve around the standards of living, socioeconomic status, equality, opportunities, and improvement of business effectiveness. The inexistence of a linear relationship between minimum wages and levels of employment highlights the need for an expansive interpretation of economic factors that influence employment. An analysis of the concept of the minimum wage in the context of economic models and empirical studies illustrates the positive and negative aspects concerning setting wage levels.

The concept of supply and demand dictates that employment is subject to the equilibrium between labor demand and supply, which incorporates all economic factors. The supply-demand curve is such that as the number of workers increases, the level of wages decreases while as the number of workers decreases, the level of wages increases.

In this regard, the supply and demand for labor determine the level of wages in a natural manner without human interference, and establishing institutions to determine the level of wages is likely to alter the balance between demand and supply (Sherman, Hunt, Nesiba, O’Hara and Wiens-Tuers 377).

Considering that there is a greater supply of low-skilled labor in comparison to high-skilled labor, setting minimum wages will force employers to minimize recruitment within the low-skill labor market, which will affect a significant portion of the population. On the other hand, the high-skilled labor market will remain largely unaffected because of its importance to employers and the fact that the segment constitutes only a limited number of individuals.

Therefore, policies on a minimum wage can only be productive if the focus is on reducing the minimum wage, which would ensure that the low-skilled labor market continues to thrive and prevent the increase in levels of unemployment in a country. The concept of employment as a factor of equilibrium between the demand and supply of labor has come under criticism due to assumptions that fail to consider aspects of market elasticity.

Inelastic demand for certain products creates a scenario whereby the employer transfers the cost of production to the consumer rather than regulation the size of the workforce. In this regard, the increase in wages will lead to increased prices of a product without causing the laying-off of workers because the high inelasticity of the product ensures that the demand for the product continues to thrive.

Furthermore, in the view of the balance of power between employers and employees, setting minimum wages could be productive by ensuring that wages and employment are within the optimal levels of the product of labor. Therefore, laws on a minimum wage would act as a form of regulation that ensures employers benefit from optimum productivity while ensuring that worker gets value for their services.

Proponents of policies on minimum wages claim that ensuring workers do not sell their hourly, weekly, or monthly services for less than the recommended value, safeguards them from exploitation in the workplace. In this regard, laws on the minimum wage create a level playing ground for both employers and employees and enable an environment that nurtures workers’ motivation and commitment towards organizational goals.

Another advantage of setting minimum wages is the promotion of appropriate distribution of income, which is crucial to the stimulation of consumption in a country. Consumption depends on the level of purchasing power, which is attainable by placing the low-skilled workers, who constitute the majority of the population, under a reasonable payroll.

Furthermore, the increase in purchasing power would allow the government to reduce its spending on social welfare programs and direct the funds to other projects. Setting minimum wages encourages people to enroll in education and training programs in the pursuit of jobs with higher pay and facilitates an increase in productivity as employers can adopt diverse technologies and systems to enhance efficiency.

Opponents of laws on minimum wages assert that creating policies that seem to coerce employers adversely affects the employer-worker relationship and contributes to unemployment. Setting up institutions that recommend particular wages forces employers to focus on having a productive but small workforce and introduces hurdles in the sustenance of productivity through the reduction of wages as a cost of production (Taylor and Akila 355).

Therefore, minimum wage laws minimize chances of employment, especially among low skilled workers, and adversely affect the employer-worker relationship as employers seek to get the maximum value for their money. Considering that the criteria for minimum wages focus on the level of education and training, the poor would have limited means of earning an income because their financial situation limits their access to education and training. In this regard, minimum wages are likely to lead to a widening of the gap between the rich and the poor, promote inequality in society, and contribute to social conflicts.

Apart from the effects on employment, minimum wages increase the likelihood of inflation as restrictions on businesses force organizations to transfer costs to consumers. Furthermore, minimum wages encourage job movement as people look for relevant occupations, which may interfere with development agendas in particular regions. Another disadvantage of minimum wages concerns the negative effects on small firms, which lack the capacity to offer high wages in comparison to large firms in the same industry. Unfair competition in terms of wages would force small firms out of the market, leaving large organizations to enjoy and exploit their monopolistic existence, which would have a detrimental effect on the economy.

Empirical studies by David Card and Alan Krueger on the relationship between the minimum wage and employment in New Jersey between 1992 and 1993 illustrate that an increase in the minimum wage from 4.25$/hr to 5.05$/hr among workers in restaurants led to an increase in employment (Kosters 56). Economic analysts attribute the increase to the setting of minimum wages at the equilibrium point of labor demand and supply for low-skilled workers, which creates a scenario whereby low-skilled workers would get a similar amount of pay in the absence of laws on minimum wages. Adjustment of the federal minimum wage in 1997 provided an opportunity for David Neumark and William Wascher to analyze the effects of minimum wages in New Jersey and compare the results with previous studies by Card and Krueger. By analyzing payroll records from large restaurants, the researchers identified detrimental effects of the increment in the minimum wage from 4.25$/hr to 5.15$/hr.

The conflicting results from the two studies became a source of contention, which the researchers ended by reaching an agreement that while minimum wages had no detrimental effects in the context of small restaurants, negative effects were evident in large restaurants (Neumark and William 108). Further studies showed that the negative effects of minimum wages on employment were significant, as evident by the incorporation of additional data sets from California. An analysis of the trend of the federal minimum wage in the United States shows that between 1979 and 2003, the real value of minimum wages declined by about 30 percent. In contrast, there has been a significant increase in the level of hourly earnings for the average worker, which economists attribute to diverse factors apart from the equilibrium point of demand and supply.

The composition of a country’s population is a center of focus in the study of the effects of minimum wages with concerns that an increase in minimum wages increase unemployment in countries that constitute mainly of the youth because young people have few skills. Economists cite the case Australia whereby despite the high rate of the minimum wage and employment, the country has had to formulate plans to lower the minimum wage rate for teens. The structuring of the wage rate in Australia is responsible for low teen unemployment in the country, which is about 16 percent as compared to the United States, which has an average teen unemployment rate of 24 percent (Blau and Lawrence 84).

Australia has put in place measures that ensure minimum wages progress with age to include the aspect of increased education and training. A comparison of the minimum wages in Australia and the US shows that adopting policies on minimum wages to reflect levels of training and incorporate economic indicators has positive effects on employment. The role of economic indicators in influencing the effects of minimum wages is evident by statistical analysis on the impacts of increased minimum wages that indicate an increase in minimum wages in Western Australia led to a loss of about 100,000 jobs.

The lack of consensus among economists on the relationship between minimum wages and unemployment calls for further research on the relationship between the two factors. Research shows that unemployment is subject to a variety of factors, which economists must incorporate in their analysis of the impacts of setting minimum wages. The interrelationship between aspects such as purchasing power parity, saving rates, political and institutional intervention determines the influence of minimum wages in a country.

Interventions by financial institutions to control inflation may alter the transfer of income to workers and either render the minimum wages ineffective or increase the overall level of employment and consumption. For example, by increasing interest rates to control price levels, banks discourage investment and lower the demand for labor even with decreased minimum wages. Business entities may create and promote oligopoly so that despite the guarantee of high minimum wages, workers may not enjoy the benefits of increased salaries because of increased prices of goods and services.

While the debate on minimum wages is not about to cease, a consensus on the matter is important to allow the formulation of policies that allow countries to attain optimal productivity and reduce unemployment. The principle of equality and opportunity largely depends on the economic status of an individual, which is subject to employment and remuneration.

Works Cited

Blau, Francine, and Lawrence M. Kahn. At home and abroad: U.S. labor-market performance in international perspective, New York: Russell Sage Foundation, 2002. Print.

Kosters, Marvin H. The effects of the minimum wage on employment. Washington, D.C.: AEI Press, 1996. Print.

Neumark, David, and William L. Wascher. Minimum wages, Cambridge, Mass.: MIT Press, 2008. Print.

Sherman, Howard J., E. K. Hunt, Reynold F. Nesiba, Phillip A. O’Hara, and Barbara A. Wiens-Tuers. Economics: an introduction to traditional and progressive views, 7th ed. 2008. Armonk, N.Y.: M.E. Sharpe. Print.

Taylor, John B, and Akila Weerapana. Principles of microeconomics: global financial crisis edition, 6th ed. 2010. Mason, OH: Cengage Learning. Print.

Summary

The article “Raising minimum wage would ease income gap but carries political risks” examines the proposal of President Obama to raise the current minimum wage within the U.S. from $7.25 an hour to $9 an hour (Lowrie, 1).

His argument centers around his view on how American minimum wage at the present has failed to keep up with the increase in the price of goods and services and, as a result, needs to be increased in order to address the issue of income disparity between the various consumer groups at the present (i.e. the poor, the middle class and high income families) (Hicks, 24).

However, the article goes on to mention that despite the justification behind the request to raise the minimum wage, the author believes that it would be difficult given that the issue is not only a political one (i.e. the Republicans within Congress are sure to veto the request) but an economical one as well given the potential on how higher minimum wages would result in companies leaving the U.S. for destinations abroad where it would be cheaper to manufacture their goods (Lowrie, 1).

Critic

When examining the article there are two distinct factors that come to mind:

a.) The competitiveness of the American workforce

b.) The current economic recession that continues to impact the U.S. economy

The main problem with the proposal of President Obama lies in what the article states as the possibility of companies leaving the U.S. due to the increased cost in business that would come with higher minimum wage levels.

With globalization in effect enabling a company to transfer its manufacturing and operations divisions from one country to the next, it would be easy for a company to transfer their current operations from the U.S. into some other country. Not only that, with the ease of outsourcing at the present, this would result in job loss for millions of workers within the U.S. as companies attempt to find cheaper labor alternatives.

Examining the Validity of the Articles Arguments

On the other end of the spectrum comes the article “minimum human wages” which states that due to monopsony power within the labor market is it likely that increases in minimum wage at the lower end of the employment scale would actually cause an increase in the higher end of the spectrum as well (The Economist, 1).

This comes about as a direct result of employees becoming motivated to work harder due to higher minimum wage levels resulting in increased company productivity. In fact, the article even compares the situation between the U.S. and Britain and explains that increases in minimum wage may not necessarily result in a considerable level of outsourcing but would instead result in greater levels of automation.

For example, jobs that used to require people such as tellers and greeters could eventually be replaced by automated processes. The only reason why this has not been done yet is due to the fact that some companies still perceive employee wages as a more affordable alternative to automation. With a minimum wage increase this may in fact tip the balance resulting in more automated processes which would create better operational savings for a company.

It is based on this that it can be stated that while the article was able to show one of the possible scenarios that could occur, it neglected to delve into other possible outcomes some of which may in fact be positive.

It should be noted though that in a labor market that is controlled by a monopsony seller, the establishment of a minimum wage would actually result in a reduction in unemployment as the seller adjusts rates based on the established wage. However, this is based on a monopsony market and not all markets within the U.S. are classified as such.

The Current Competitiveness of the American Workforce

When taking into consideration the section on outsourcing and comparing it to the competitiveness of the U.S. workforce, it immediately becomes obvious that an average American worker is simply paid far too much as compared to their counterparts in the other countries who do the same level of work.

Aside from salaries, companies need to take into account extensive healthcare benefits, 401K plans as well as an assortment of other costs associated with hiring someone from the U.S.

While some companies continue to base themselves in the U.S. through various cost cutting measures such as workforce reductions and creating more efficient methods of operation, the fact is that as soon as an increase in minimum wage will be applied the cost of operations for them would increase by several million dollars. This creates the possibility that in order for them to survive they would need to shift operations to other countries where the cost of doing business is lower.

Conclusion

Overall, I would have to say that the article was right in stating that an increase in the minimum wage of the U.S. could possibly result in companies leaving the country. While President Obama is right in thinking that wages should match the increased cost of products, the fact is that right now is the worst possible time to implement such an endeavor.

Consumer demand within the U.S. has yet to increase to significant enough levels while at the same time companies are all too willing to leave the U.S. due to the increasing cost of doing business. Based on what I have learned about labor economics, I would have to say that this is a terrible idea and would result in job loss as companies scramble to find some degree of profitability which usually consists of terminating workers to do so.

Works Cited

Hicks, Mike. “Stagnant Pay For Low-Wage Workers A Problem.” Indianapolis Business Journal 33.53 (2013): 24. Regional Business News. Web.

Lowrie, Annie. “Raising Minimum Wage Would Ease Income Gap but Carries Political Risks.” New York Times. 13 Feb 2013: 1. Web..

The Economist. “Minimum human wages.” The Economist. Theeconomist.com, 15 Feb 2013. Web.