According to the US’s bureau labor statistics reports of 2016, the percentage of hourly-paid workers earning above the current federal minimum wage has increased greatly. In 1979, when data for hourly-paid were initially collected on a regular basis, a substantial number of the working population, 13.4 % were earning below the federal minimum wage. Today the percentage of workers with wages at or below the federal minimum has shriveled to about 3.3% amounting to 2.6 million workers of the approximately 80 million workers in the US (Bureau of Labor Statistics, 2016). Despite the fact that several Employers have already raised wages we should also appreciate that the majority of the America’s population support an increase of the minimum federal wage. Indeed this is a good signal that the country is ready and more than capable of raising the minimum wage for its people. Therefore we should raise the minimum wage now that the US’s economy has rebounded from its financial crisis of 2007/08 and is actually healthy. It is the right time to raise the minimum wage despite the general knowledge that the need or initiative to increase the minimum wage will not come from the White House given president Trump’s stand on the same following his contradictory statements on the issue.
The debate on federal minimum wage is traced back to the Great Depression of 1938 when it was first introduced by the then president Franklin Delano Roosevelt. Set at an initial rate of $ 0.25 per hour, the Congress has amended or rather increased the minimum wage a record 22 times with the last increase happening on July 24, 2014, increasing the minimum wage from $6.55 to $ 7.25. It should, however, be noted that the $0.70 increase on the minimum wage in 2014 was not informed by wage rates at the time but rather the unemployment rate at the time which was heading towards 10% (Lu, 2017). At the time the country was still suffering the aftershocks of the 2008/07 financial crisis and as such arresting the problem of unemployment took precedence.
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Having looked at the history of this debate, it is in doubt that raising minimum wage will help create jobs increase the disposable income of workers which will subsequently contribute to growth of the economy. Actually, higher pay not only raises the standards of working Americans but also plays a great deal to see employers thrive. Higher pay and contented workers leads to increased productivity, reduced worker turnover and subsequently better provision of services something which translates to profits for the employers. This has been confirmed by most of the American people both the employers and employees. According to a survey conducted in 2016 on 1000 business executive across the US by Luntz Global a Republican pollster firm, more than 80% of the respondents supported the move to increase the national minimum wage (DePillis, 2016). At the end, raising the minimum wage will help reduce or diminish inequality between the low and middle-income workers in the US.
Contrary to the belief that increasing the minimum wage would raise the wage bill for employers and probably force them to close down, lay off employees and subsequently increase unemployment levels, raising the wage will exactly cause the opposite; spur growth. According to the economists from the Federal Reserve Bank of Chicago, an increase of $1.75 in the federal minimum wage would correspond with a cumulative increase in household spending by $48 billion in the preceding year something which will increase the country’s GDP and subsequently lead to job growth. Also, going by the study conducted in 1994 by two economists Alan Krueger and David Card, on effect of raising minimum wage on employment rate showed no negative association between minimum wages and employment (OECD, 2017).
Another point to note is that enhancement in productivity and economic growth come at a higher pace than the increase in minimum wage. This that a one unit increases in minimum wage produces a higher return on productivity and the subsequent economic growth. Also by increasing the minimum wage, income inequality in the country will be reduced. Compared to other countries, the US has one of the highest levels of inequality between the rich and the poor were a very small percentage of people in the country, the richest; 1% commands almost a third (22.83%) of the nation’s pretax income (OECD, 2017). This scenario has been caused by the decrease in the inflation-adjusted value of the minimum wage since the 1980.
The other benefits of raising the minimum wage include the fact that higher minimum wage will go a long way into helping the government minimize its welfare spending. Certainly, if the financial situation of the working poor improves, their dependence on government coffers such as the food stamps would greatly decrease. By reducing the government’s income support programs the government will better channel those monies to other uses which in return will have a positive influence on the country’s economy. The increase will also help to reduce gender and race inequalities as it will bring a more equitable income supply for the disadvantaged group (OECD, 2017).
Compared to other advanced nations and in relation to the US’s GDP, the US’s should increase its minimum wage to at least 12% per hour. By taking everything to consideration i.e. cost of living and inflation a 10.90% federal minimum wage would be equivalent with the minimum wage of 1969. Supposing we add a small mark up to the minimum wage for the growth in output and productivity, the $12 should optimal. As for the opponents of raising minimum wage who state that increasing wage rage would curtail upward mobility and possibly affect the young people who are in need of job experience the answer their concerns lies in comparison of unemployment rate in relation to minimum wage of US and other like countries. Despite having a higher minimum wage rate ($10), Germany’s youth unemployment rate is at 7.8% while Switzerland’s ($9.20) is at 8.5%. In contrast, the US which has a strong economy with lower minimum wage rate has the highest youth unemployment rate of 15.5% (Komlos, 2015). This is a true testament that minimum wage has no real influence on unemployment. Also by the fact that those people on minimum wage are usually the common people, increasing their wages does not in any way threaten the export sector of the country and as such poses no risk to external competitions.
However, opponents to the raising of the minimum wage have constantly maintained that rising of the minimum wage will raise the wage bill of several employers even to a point that they will not be able to pay their workers. As such, many businesses will be forced to close down, lay off its workers, or reduce their hiring (ProCog.Org, 2017). To a greater extent, by raising the minimum wage rate, the opponents of raising minimum wage reiterate that the increase will make it rather difficult for low-skilled workers especially those without prior experience, who form a substantial number of the working population, to find jobs or become upwardly mobile. Also, these opponents have continued to state that that raising the minimum wage at the federal level fails to take into consideration regional cost-of-living disparities where raising the minimum wage could actually spell doom for the low-income communities in particular.
Despite the concerns of the opponents of raising the minimum wage bill, a full-time job for the American people should not translate into a life in poverty. For the last 8 years since 2014, the US economy has greatly improved yet millions of American workers have continued to work for the minimum wage of $7.25 with little hope of ever getting a rise. In fact assuming an individual works 40 hours a week, at the current federal minimum wage of $7.25, a worker only makes $ 15080 a year for full-time work. Once all the statutory deductions on state and federal taxes plus Medicare and social security are made a worker will retain about $225 a week or $12000 a year. To say the least a net income of $12000 per year is exactly the threshold of poverty for single individual in the US (Komlos, 2015). Indeed such an amount is too low as it only translates to the declining standards of living, shriveling middle class and of course reduced economic mobility for the American people. At such a low scale, one will not have it easy to pay rent while at the same time take care of dependent children. As a matter of fact, maintaining the federal minimum wage at its current rate serves to tie down the working poor and the economy at large to an impoverishing cycle caused by insufficient pay. Hence, to make ends meet, millions of American population working at the prevailing federal minimum wage and below has mostly been forced to turn to government and food pantries for assistance (Lu, 2016).
In conclusion, following the related advantages attached to increasing the minimum wage rate, several cities and 29 states have increased their minimum wage above the national limit. Moreover, the increase above the federal floor has taken place even in the states which are in the red such as South Dakota, Nebraska, and Arizona. This is a true indicator that we should raise the minimum wage to above $10. However, we should be careful and understand that raising the minimum wage is not the absolute solution to the unemployment and income inequality experienced in the country. Other steps such as improved training techniques strong labor protection laws among other policies should be enacted.
References
Bureau of Labor Statistics (2016). Characteristics of minimum wage workers, 2015. Retrieved from https://www.bls.gov/opub/reports/minimum-wage/2015/home.htm
Depillis, L (2016) Leaked documents show strong business support for raising the minimum wage. The Washington Post. Retrieved from https://www.washingtonpost.com/news/wonk/wp/2016/04/04/leaked-documents-show-strong-business-support-for-raising-the-minimum-wage/?utm_term=.17b20f12bc59
Komlos, J (2015). Why raising the minimum wage is good economics. Retrieved from http://www.pbs.org/newshour/making-sense/why-raising-the-minimum-wage-is-good-economics/
Lu, C (2017). Why It’s the Perfect Time to Raise the Federal Minimum Wage . The Times Retrieved from http://time.com/4870916/congress-federal-minimum-wage/
OECD. (2017). OECD Income Distribution Database (IDD): Gini, Poverty, Income, Methods, and Concepts . Retrieved from http://www.oecd.org/social/income-distribution-database.htm
ProCog.Org (2017). Should the minimum wage be increased? Retrieved from https://minimum-wage.procon.org/
