Introduction
One of the most fundamental aspects of the United States labor system is the minimum wage. The minimum wage is the lowest amount of wage that companies can legally pay to their workers. The debate on the minimum wage has been a contentious topic amongst employers and employees in equal measures. Important to note, however, is the fact that the United States has stayed for many years without a clear policy on minimum wage until the Great Depression period in the 1930s (“Minimum Wage”). As such, the country lacked a national minimum wage, meaning that no single legislation was available to protect the workers from potential exploitation. Historically, the United States Supreme Court acted as one of the significant hurdles against the push by the labor unions and the activists to have a compulsory minimum wage. In several cases, it ruled that it was against the constitution to give employees the power to set their own prices to provide labor. For instance, in 1918, the Supreme Court, in Hammer v. Dagenhart law held that the Federal child-labor law was unconstitutional. In 1923, the court also ruled against the minimum wages for women in the case of Adkins v. Children’s Hospital (“Fair Labor Standards Act of 1938: Maximum Struggle for a Minimum Wage”).
President Theodore Roosevelt is usually accredited for the introduction of the minimum wage policy in the US. After his 1936 victory as President, Roosevelt signed into the law the Fair Labor Standards Act (FLSA) in 1938 (“History of the United States’ Minimum Wage”). Part of the role of the FLSA was to introduce regulations protecting the American laborers from exploitation and further established a federal minimum wage amounting to 25 cents an hour. Part of the reason for this legislation was to create “a minimum standard of living necessary for health, efficiency and general well-being, without substantially curtailing employment” (“History of the United States’ Minimum Wage”). Currently, the minimum wage is at $7.25 per hour with proponents citing that it is a fair living wage which upon rising might hurt the economy of the country. They have also opined that an increase in the minimum wage leads to consistent unemployment among the least skilled labor force. However, increasing the minimum wage has benefits that outweigh its drawbacks. Studies have revealed that increase in minimum wage improves the living standards of the workers, reduces the poverty indices, and enhances the morale of the employees ("History of the United States' Minimum Wage").
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What Is The Issue?
Since the introduction of the FLSA, the country has had several changes in the area of the minimum wage. The Fair Minimum Wage Act of 2007 was the most recent amendment that saw the increase of minimum wage from $5.15 per hour before July 24, 2007, to the current $7.25 per hour after July 24, 2009 ( Alsalam, Carrington, Dahl, & Falk, 2014). However, the reality is that the current $7.25 minimum wage is not enough to meet the high cost of living and thus there have been calls to increase it. In the State of the Union Address of 2014, the then President Barack Obama called for the increase to $10.10 per hour. The issue of raising the minimum wage has always been met with an increased sense of controversy. Whereas it remains evident that it would effectively reduce the poverty indices, others have also felt that it would lead to the layoff of many workers especially those in small business. In the wake of this controversy, it remains apparent that the current minimum wage policy has done little to alleviate the socioeconomic situations of the workers (Petersen, 2013). It is in this regard that raising minimum wage seems to be the only viable step that the country must take. Employees will be in a better position to counter the increasing cost of living, a factor that will boost their productivity. Petersen (2013) noted that the workers would have an added incentive to work given that given that they will be better placed to tackle the income inequality. Improving the minimum wage accelerates economic growth as it gives the workers more money to spend. It, therefore, leads to an increase in demand for products and the subsequent business revenue. The business will also benefit from an increased minimum wage because it is less likely to lose workers who might want to find better wages. Furthermore, it will also attract some of the best employees who will ultimately spur the organization to increased productivity.
Although a positive thing, an increase in the minimum wage comes with an air of controversy that has left many human resource managers in a dilemma. Many businesses have asserted that the minimum wage could likely heighten their labor costs. Human resource managers will be forced to hire a few people when the government forces them to pay more per worker. The main aim of the managers is to ensure that the labor costs remain the same. The laying off of workers to meet this demand will, therefore, increase rates of unemployment. The low-wage workers suffer the most because they have to compete harder for the few available jobs. Another controversy that comes with raising the minimum wage is that smaller companies might be pushed towards declaring bankruptcy. Bigger companies, on the other hand, will have to seek for outsourcing jobs to countries that have lower labor costs. Critics of raising the minimum labor laws have also noted that it does not alleviate the poverty level but rather increases it due to the increased levels of unemployment. However, with all these challenges and controversies, essential to note is that the advantages of raising the minimum wage outweigh its disadvantages. Petersen (2013) intimated that research has shown that increasing the minimum wage could potentially increase the number of jobs available in an economy. Businesses resort to other strategies aimed at offsetting the high labor costs. They can employ tactics such as reducing the number of working hours or raising the prices of their commodities or prices. As such, this will ultimately create room for more jobs as the consumer spending will have increased.
Therefore, increasing the minimum wage remains a viable option for the government in improving the working conditions of the people. However, in doing so, the government has to ensure that it maintains a balance between protecting the workers and ensuring that the companies remain competitive to compete. In the spirit of improving the working conditions and economic viability of employees, many states are currently implementing laws that seek to increase the minimum wage from the legal $7.25 per hour. States must ensure that their minimum wage increases every year to ensure that it matches the ever-increasing cost of living. Research conducted by the Washington State University proved that an increase in the minimum wage improved the lives of a whopping 97% of the low-skilled workers ( Alsalam, Carrington, Dahl, & Falk, 2014). Using the Card-Krueger thesis, a high minimum wage has beneficial effects on wages, benefits, and the productivity of the employee. States have also developed their individual minimum wage policies aimed at improving the conditions of the employees at the state level. Currently, twenty-one states in the US have a minimum wage that correlates to the federal wage rate. However, states such as Georgia and Wyoming have a rate lower than that set by the federal government. Schmitt (2013) illustrated that States such as Alaska, Hawaii, Arizona, and California among many others have recently adopted a minimum wage rate that is higher than the federal rate ( Dube, Lester, & Reich, 2010).
Concerning the laws surrounding this issue, the federal minimum wage provisions are outlined under the FLSA. Meer and West (2015) indicated that effective from July 24, 2009, the FLA laws have provided for $7.25 as the minimum wage acceptable across the country. Individual states have their minimum wage laws. However, there are certain circumstances where a worker is subject to both the minimum wage laws of the federal and state government. In such a scenario, the employee becomes entitled to the law with the higher stipulation. However, in understanding the laws surrounding minimum wages, critical to note is the fact that the FLSA does not provide a framework for wage payment or any collection procedure. States, however, have laws which provide a legal framework for filing such claims. The Wage and Hour Division, a branch of the Department of Labor, administers and enforces all the federal minimum wage policies.
Finally, in understanding the issue, it remains critical to note its implications on the Human Resource professionals. The primary objective of the employers is to keep the labor costs as low as possible. Whereas the government compels the business to adopt an increase in the minimum wage, employers must devise strategies to ensure that they remain competitive in the wake of the increased labor costs. Schmitt (2013) noted that the human resource management could decide to slash some of the benefits enjoyed by the workers. Alternatively, they can also choose to reduce the number of low-skilled employees in the company. Higher minimum wage policies usually affect businesses in three critical areas including hiring and recruitment, profitability, and the business' finances. Human resource managers must understand that the minimum wage is a vital issue that needs to increase to counter the inflation levels. As such, they must be well-equipped to deal with it without necessarily resulting in profound changes. The most viable strategy that companies could resort to is to increase the cost of goods and commodities. Human resource managers will, therefore, maintain the minimum wage plus other necessary benefits since the labor costs will be compensated by the increased revenue from the goods and services traded by the company.
Why Is this Issue Important for an Organization?
The minimum wage increase is an inevitable thing that all organizations have to adopt. Currently, several bills are on the floor of the houses seeking to increase the minimum wage limit further. Cities such as Seattle, San Francisco, and Los Angeles have passed bills that aim at raising the minimum wage up to $15 ( Dube, Lester, & Reich, 2010). Therefore, this makes it a big concern for organizations that have to develop strategies that will ensure they remain competitive in the wake of such policies. The issue of minimum wage is vital for any organization in several ways. First, it has an impact on the survivability of business especially the small business enterprises. For small organizations, the minimum wage affects the small business directly because an immense amount of revenue is channeled to the employee wages and benefits. Therefore, they resort to offloading workers due to the inability to settle the increased labor costs. Since most of these companies cannot do with a significant cut of labor, they decide to announce bankruptcy and eventually leading to closure or relocation. Important to note is that the small business account to a whopping 70% of the organizations in America. Prominent organizations also respond by reducing their labor force, something that has a direct impact on increasing the unemployment rates. Therefore, it remains incumbent upon the human resource management to understand the implication of the minimum wage policies and employ strategies to enhance business survival.
Secondly, an increase in the minimum wage has several benefits to the well-being of the organization. First, it plays a significant role in the recruitment and retaining of the organization's employees. A survey conducted by "Jobvite Job Seeker Nation" in 2015 revealed that 61% of job seekers would take a new job due to the amount it pays (Meer, & West, 2015). Proper remuneration, therefore, attracts employees and ensures that the organization keeps hold of their best talents. It is in this regard the human resource managers must comply with the Federal or state policies on minimum wage to ensure that the recruit and retain the best employees. Part of the job of the human resource management is to provide that their workers are motivated to enhance their productivity. In this regard, raising the minimum wage has benefits to the organization because it guarantees a sense of satisfaction on the part of the employees. Research conducted by the American Psychological Association in 2015 reported that finance and money are the most significant stressors amongst workers. With the ever-rising cost of living, the only way to keep employees motivated to meet the organizational goals is to provide them with financial stability through implementing the minimum wage as required by the federal or state government.
Thirdly, and also critically important is that the minimum wage policy has a direct influence on the company's brand. Many companies worry that heightening the minimum wage would eventually increase the prices of commodities and thus push the customers away. However, a research conducted by the Hart Resource Foundation in 2015 found out that 75% of Americans are in support that the minimum wage should increase to $12.50 (Meer, & West, 2015). Implementation of the minimum wage policy will likely build on the company's image as a compliant entity that is committed to empowering its workers to satisfy the demands of the customer. The minimum wages also has other benefits for the organizations other than the stated. The human resource manager must ensure compliance with these measures, failure to which the company can be sued for noncompliance. Such a process can cost the company millions in court proceedings and compensation. Therefore, the federal, state and local policies regarding the minimum wages remain a fundamental aspect that every organization should take with the seriousness it requires. Increase in minimum wage policies also affects the way a business organization budget. It might need the top management to reconsider its means of production, sale, and recruitment amongst others in a bid to meet the new labor requirements.
How Managers Are Currently Addressing the Issue in the Organization
As retaliation to the increased minimum wages, most managers will resort to improve the labor cost by raising the prices of goods and services. However, this does not come without challenges as the business might suffer a loss of customers who might show sensitivity to abrupt changes. Therefore, it is incumbent upon the managers to conduct market studies that would potentially inform them of the necessary information regarding how the change in prices would eventually affect the business. Baskaya and Rubinstein (2012) asserted that managers must conduct a feasibility test that aims at assessing how the price changing strategies will likely impact the company’s competitive advantage. Before undertaking the pricing decision, the managers usually embark on a mission to understand their customers. Thereafter, the manager is at liberty to decide whether to increase the commodity prices as a method of offsetting the increased wage rate.
Managers can also decide to engage in the unfortunate act of laying off part of its labor force. The group of workers that usually suffers in this regard is the low-skilled labors who the company find easier to lose than their skilled counterparts. The rise in the minimum wage rates means that the labor costs are increasing and the company develops a likelihood of suffering immense losses. Whereas most managers embark on relieving workers of their duties, others can reduce the number of hours that they work in a day. Schmitt (2013) pointed out that the low-skilled workers, therefore, will pave the way to ensure that the company remains viable in satisfying both the labor costs and its profitability. The reduction in the number of working hours is also a strategy meant to reduce the amount of money utilized in the labor costs. The method has broad implications because it can increase the rates of unemployment. However, many managers have relied on this method to offset the enormous labor costs that could likely lead the company to make massive losses and thus impacting on its sustainability.
In the wake of the increased labor costs due to the expanded minimum wage policies, managers, especially in small business could consider relocating to other regions that have favorable labor policies on the minimum wages. Important to note is that the minimum wages are not only controlled by the federal government but also the state and local governments. Therefore, different states and local jurisdictions including cities have different minimum wages with other such as New York proposing an increase up to $15 per hour. When managers are met with such scenarios that threaten to disturb the profitability and sustainability of a business, the overall implication is that they will have to look for better places that at least provide for a better basic wage in tandem with the federal provisions at $7.25. Given that America is primarily composed of small business accounting for up to 70%, managers taking these decisions always affect the landscape of business operation in the country (Baskaya, & Rubinstein, 2012).
Conclusion
The increase in minimum wage is an extremely sensitive debate that has formed part of America's discussion for many years. President Roosevelt, through the creation of the FLSA, led to the creation of the concept of the minimum or federal wage to ensure that workers are freed from the prospects of exploitation. The FLSA has provided a basis on which changes have been made with the latest amendment putting the minimum wage at $7.25 per hour. However, states and local governments have their laws that have provided for better pay than the federal rate. Increasing the minimum wage has benefits for the organization and the worker alike. The organization retains the best workforce and provides them with an added incentive to increase their production. On the part of the employee, it alleviates poverty and equips the employee better to tackle the increased cost of living.
Increasing the minimum wage improves the workers' economic viability on the one hand, and on the other hand, enhances the economic growth of the organization. As employees receive improved pay, the money is pumped back to the business thereby increasing revenue for the company. As managers remained geared up to tackle the issue of the increased minimum wage, specific fundamental questions however remain. As different states have continued to formulate even better amendments to the minimum wage laws, it becomes a massive challenge to the business organizations, which have to resort to pricing strategies that can potentially hurt their customer base. Therefore, the government should strike a balance between increasing the minimum wage and ensuring that business is better placed to tackle the labor cost problems. However, since inflation continues to grapple the economy, a company must remain flexible to changes in minimum wages and at the same time adopt better strategies to remain competitive in the market.
References
Alsalam, N., Carrington, W., Dahl, M., & Falk, J. (2014). The effects of a minimum-wage increase on employment and family income. Congressional Budget Office , 2.
Baskaya, Y. S., & Rubinstein, Y. (2012, December). Using federal minimum wages to identify the impact of minimum wages on employment and earnings across the US states. In the Department of Economics Workshop .
Dube, A., Lester, T. W., & Reich, M. (2010). Minimum wage effects across state borders: Estimates using contiguous counties. The review of economics and statistics , 92 (4), 945-964.
Fair Labor Standards Act of 1938: Maximum Struggle for a Minimum Wage https://www.dol.gov/oasam/programs/history/flsa1938.html
History of the United States’ Minimum Wage https://www.minimum-wage.org/articles/history
Meer, J., & West, J. (2015). Effects of the minimum wage on employment dynamics. Journal of Human Resources .
"Minimum Wage" Research Starters eNotes.com, Inc. eNotes.com 9 Jul 2018 http://www.enotes.com/research-starters/minimum-wage#research-starter-research-starter
Petersen, L. (2013). Effects of the minimum wage increase on Employment and Family Income. Routledge.
Schmitt, J. (2013). Why does the minimum wage have no discernible effect on employment? Center for Economic and Policy Research , 22 , 1-28.
