Introduction
A minimum wage is the lowest amount of wage, salary, or emolument that employers are legally mandated to pay their workers. It can also be described as a government-imposed price control below which individual workers may sell or offer labor services. In the United State, the minimum wage is set by the U.S labor law. Employers are mandated to pay their workers the highest set minimum wage as stated by the federal and local law. The legislation of minimum wage in the United States emerged in the wake of industrialization at the end of the nineteenth century with the desire to end sweated labor. During the industrialization period, a majority of young women and young workers received substandard meager nonliving wages which did not allow them to afford necessities in life. It took the effort of social and political activist groups and progressive reformers in ensuring that the minimum wage laws are successfully passed in all the states of the United States. The federal government mandated a nationwide increase of minimum hourly wages paid to individuals to be raised to $7.25, on July 24, 2009, to guarantee a minimum standard of living for unskilled workers ( Murphy, 2014). More than twenty-nine states have complied with the federal legislation on minimum wage, and by the beginning of 2018; the minimum wages in these states were higher than the minimum set by the federal government. A lot of arguments have been aired about the positive effects and negative effects of minimum wage. Proponents of minimum age argue that it helps reduce poverty among workers, increases standards of living, and reduces inequality. On the contrary, opponents of minimum wage argue that it increases unemployment, increases poverty and has a damaging effect on businesses.
O’Neill, D. (2015). Divided opinion on the Fair Minimum Wage Act of 2013: Random or systematic differences?. Economics Letters , 136 , 175-178
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This paper tries to analyze the opinions of economists’ on the Fair Minimum Wage Act of 2013 and tries to find a systematic difference between those supporting and opposing the goals of the legislation.
Goals of Minimum wage
The primary goal of a minimum wage is to ensure decent wages, protect sweating workers from being exploited by their employers and ensure that poverty levels among American workers are reduced, and the quality of life/ living standards is alleviated. The federal law on minimum wage has ensured that workers are in a position to earn living wages that have enabled them to meet their necessities of life. Before the minimum wage being implemented in 1938, sweating workers' wages tended to fluctuate on a weekly basis. According to the Economic Policy Institute, the minimum wage not only offers help to individuals facing extreme poverty but it also helps in ensuring human dignity is maintained. Minimum wage ensures equal distribution of salaries which is fairer as workers feel that they are valued for the work they have performed. Minimum wage laws also act as a source of protection for unskilled individuals who have least employment options from exploitation by companies and employers. Though minimum wage has positively impacted lives of workers, its effects on smaller businesses should not be overlooked. If minimum wages are high, the profit margin of small businesses will be negatively impacted, which can cause these businesses to close down or retrench workers to manage its operating expenses. Small businesses with less than $500,000 in sales are exempted from observing the federal minimum wage law to help abate extreme negative effects of minimum wages on small businesses. Minimum wage law is also helpful to businesses as it allows tipped workers to earn a relatively lower wage than the minimum set federal wage.
Greene, S. S. (2013). The broken safety net: A study of earned income tax credit recipients and a proposal for repair. NYUL Rev. , 88 , 515.
This novel gives an in-depth qualitative analysis to show the advantages of EITC on the welfare of low-income earners in the society and to illustrate the effect of raising the minimum wage.
Effects of Raising Minimum Wage
Most people argue that raising the minimum wage will increase fairness and redistribution of salaries which will, in turn, reduce poverty and improve the quality of living of American Workers. President Obama proposed in his State of the Union address that raising minimum wage seemed popular with the general public while economists view it as being unpopular. Economists argue that minimum wage will work against free-market principles, such as the market forces of demand and supply. Economists have questions on whether raising a higher minimum wage will result in positive outcomes in the economy and help in reducing poverty levels in the United States. Even if the minimum wage is raised, competent working individuals will still feel that hard-working individuals are still getting lowly compensated. Economists argue that if the primary purpose of raising the minimum wage as to help the poor, then it would be more beneficial if the federal government introduces a more generous earned- income tax credit (EITC) as it will provide more support to the working poor and would also be beneficial to businesses. The argument is based on the fact that minimum wage and EITC complement each other and that a minimum wage will cost the federal government nothing while the expansion of earned-income tax credit will necessitate an increase in government spending.
Murphy, R. P. (2014). Economists Debate the Minimum Wage. Library of Economics and Liberty
This article analyzes various vies aired by economists on both the negative impacts of eliminating the minimum wage.
Effects of eliminating Minimum Wage
Diverse views on the issues have been aired on the need of setting of the minimum wage by the federal government. Opponents of minimum wage argue that setting a uniform and overall minimum wage will limit the ability of a worker to negotiate payment for any work performed. In contrasts, proponents argue that federal government protection is the only way of ensuring that American workers can receive decent pay. On the other hand, economists argue that the market forces of demand and supply will bring competition between employers from workers and thus keep employers in check and prevent them from misbehaving. Economic analysis that free-market forces will bring competition among employers and ensure that workers are compensated in accordance to their contribution in an employers' business fail to note that there are times where there is inexistent competition among employers. It is not uncommon to find company towns where only one employer dominates the market and influences the local economy of a town. Such an employer faces no competition from other companies, and it makes it easy for him to dictate the minimum wage of workers for the entire local area. It will be beneficial to set a minimum wage when such a situation exists to ensure that workers receive better pay. The minimum wage will also prevent such an employer from exploiting workers by providing them with meager wages which are incomparable to the hard work they perform.
Lee, D. R. (2014). The two moralities of the minimum wage. The Independent Review
, 19 (1), 37-46.
This article looks at the morality issues on minimum wage by looking at the effect of raising the minimum wage on employment and labor market economies
Minimum wages and Unemployment
A lot of research has been conducted to ascertain whether the setting of minimum wage increases unemployment rates in the American public. Opponents argue that the setting of minimum wages does not guarantee people jobs, but it will only act as a restriction and place an additional obstacle in the path of unskilled workers seeking employment opportunities. Economists argue that minimum wage increases unemployment among low-skilled workers reduces on-the-job training offered by employers, and reduces the number of job positions offering fringe benefits to employees. Besides affecting the number of people who will get employed, opponents further argue that minimum wage will change the way workers are compensated. Employers will cut off benefits enjoyed by employees such as subsidized child care or stop offering free room on board, which leaves workers more badly off.
Although the arguments presented by opponents could have some truths embedded in them, empirical analysis finds that the overall adverse employment effects brought by as a result of a minimum wage are negligibly small. The empirical evidence established that the rate of employment would fall slightly because raising the minimum wage will lower labor turnover which will, in turn, raise productivity and labor demand in the market. Employment may not fall because pass the cost of a higher minimum wage to consumers by increasing prices of its products and thereby maintain some form of equilibrium in the labor market.
Neumark, D., Salas, J. I., & Wascher, W. (2014). Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?. ILR Review , 67 (3_suppl), 608-648.
This article debates on the effect of a minimum wage in reducing poverty and whether it helps in improving the quality of life of the poor.
Effect of Minimum Wage Laws on the Poor
It is true to say that that minimum wage helps in redistribution of salaries to ensure that workers are not exploited nor discriminated about regarding pay. Poor people will somehow be in a position to improve their standards of living with increased income. Although minimum wage has some beneficial effects on individuals belonging to a lower class in the society, it also has a lot of adverse effects on the poor. Opponents argue that it is ironical to accept minimum wage as a major weapon in the war on reducing poverty. A rise in minimum wage makes companies increase prices of their products and customers paying for these prices have lower family income, and thus the price effect will harm the very poor people who a minimum wage is supposed to protect and help. Opponents of minimum wage further argue that the increase in productivity which is brought as result of a rise in minimum wage will attract more efficient workers in the labor market. If the new workers come from affluent families, they might end up taking jobs held by poorer workers which will in turn disadvantage the poor in the society.
Conclusion
Though opponents of the minimum wage have raised their concern and some valid points to critic minimum wage, they should refrain from blind criticism and acknowledge the fact that the legislation of minimum wage laws has its benefits. Before minimum wage laws were enacted, unskilled workers and individuals of the lower class faced a lot of exploitation in their respective workplaces and used to work hard but receive little and non-living pay. Since the passage of minimum wage laws, exploitation concerning pay has reduced if not ended and competent individuals are in a position to receive better pay and use the money to improve their quality of life.
References
Neumark, D., Salas, J. I., & Wascher, W. (2014). Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?. ILR Review , 67 (3_suppl), 608-648.
Greene, S. S. (2013). The broken safety net: A study of earned income tax credit recipients and a proposal for repair. NYUL Rev. , 88 , 515.
Murphy, R. P. (2014). Economists Debate the Minimum Wage. Library of Economics and Liberty .
Lee, D. R. (2014). The two moralities of the minimum wage. The Independent Review , 19 (1), 37-46.
O’Neill, D. (2015). Divided opinion on the Fair Minimum Wage Act of 2013: Random or systematic differences? Economics Letters , 136 , 175-178
