Minimum Wage In The United States

Introduction

In American companies, the low level of hourly wages offered is known as minimum wage US. Recently, the rate of this pay is $7.25 for every hour (Amadeo, 2017). Law for minimum wage is also prevalent in most states. The employers will receive that which is higher, state or federal minimum wage. The reason behind designing these laws of the minimum wage is to halt employers who are misusing poor workers. This concept must not be mixed with the lowest living wage. Even though the minimum wage saves workers from being exploited, it is deprived of keeping pace with the prevailing inflation. In fact, for 52 weeks at a rate of 40 hours every week, the minimum wage equals $15,080 each year. According to the federal level of poverty, it is higher than enough, but for a family of four persons, it is quite less than the level of poverty. In simple words, if somebody with a family of 4 to 5 individuals is attempting to support them through the minimum wage, then he would meet the requirements for federal poverty support (Amadeo, 2017).

Pros And Cons Of Minimum Wage

There are many arguments in favor or against whether, for any economy, this minimum wage law is good or not. Mostly, those favoring this wage law are connected with the labor force, while those against it are linked with businesses.

Pros Of Minimum Wage

Providence of enough income is intended by minimum wage laws to meet the requirements of a living salary. This amount is equal to that which is required to have enough shelter, clothing, and food. So, the first benefit is that it allows children and women who are most vulnerable to receive remuneration for their living expenses, and this enhances worker’s morale (Hendrickson, 2014).

Secondly, through this, there is an increase in productivity as it is making sure that workers are not overloaded with work and also have plenty to eat.

Thirdly, the minimum wage is an incentive for the upsurge of economic growth as it offers workers more salary to spend. Thus, it results in increased demand and a boost in business development.

Fourth, if workers have more money and time, then they will invest more in their education. This automatically results in productivity growth and enhances the desirability of a country’s labor force. A well-educated labor force increases the number of small companies and innovations (Hendrickson, 2014).

Fifth, a business can dig more out of this law of minimum wage as workers will not leave for high-paying jobs. This results in reducing turnover and retraining expenses as well.

According to Brock Haussamen, an economics professor, a person earning minimum wage is not utilizing as many public services as somebody on unemployment. An unemployed laborer is given rent assistance, welfare, and food aid in the majority of states. Through minimum wage, the necessity for having public assistance is reduced, and this also lowers the tax burden on the state and community (Abowd, Kramarz, Lemieux and Margolis, 1997).

Located in Washington, D.C., the Economic Policy Institute, a research group for economics, revealed a conclusion in its study conducted in 1999 that almost 40% of the US minimum wage earners are working parents. If we look further, 33% of married couples having children are minimum wage earners. So, without having a minimum wage, all these workers will be forced to work at lower rates (Hendrickson, 2014).

For an unemployed laborer, the minimum wage is an incentive to grab that job, as he is aware of what will be the minimum pay, according to Economics Help-an economics website. That unemployed individual will compare that minimum wage with the public assistance he’s getting and then determine whether he should take the job or not.

Cons Of Minimum Wage

As the salary of the labor force is the biggest budget element for business owners, they point out the laws of the minimum wage as a reason for an increase in labor costs. If they have to pay extra, they will be bound to hire only a few laborers if they wish to maintain the labor cost at the same level. As a result, there is an increase in the unemployment rate. More specifically, low-wage workforces are facing more tough times, as only a few jobs are available to compete for (Hendrickson, 2014).

Secondly, most small-level companies are not in a position to hire fewer laborers. They might be facing proclaiming bankruptcy as an alternative. Thus, labor-intensive companies are getting penalized through minimum wage. Automatically, this is in favor of those industries which are capital-intensive. With time, this will lead to a gradual shift in the economic base of a country.

Third, there is an increase in job outsourcing because of minimum wage laws. Companies will move towards countries where there are low labor costs.

In competitive labor markets, there would be unemployment due to minimum wage because there is an increased supply of the labor force due to high salaries and a decrease in labor demand. Firms that are located in industries that are labor intensive will face this situation mostly. As an example, cleaning and hairdressing companies will see a huge increase in their wage bills (Neumark, Schweitzer and Wascher, 2004).

The fourth pro is that the primary goal of laws of minimum wage might not be addressed, i.e., reduction in poverty. Due to an increase in unemployment, we can see an increase in the poverty level above average (Sources: David Newmark and William Wascher, Minimum Wages, MIT Press. “A ‘Very Credible’ New Study on Seattle’s $15 Minimum Wage Has Bad News For Liberals,” Washington Post, June 26, 2017.).

Cost-push inflation may be a result of minimum wage as the firms are having an increase in labor costs so they would likely pass it to the customers.

Most of the people who are getting benefits from this minimum wage law are secondary earners, so their household is suspected to be lower than the poverty line. On the other hand, a family having a single earner with minimum wage would be relatively poorer. But still, they will not enjoy the benefits of the minimum wage (Neumark, Schweitzer and Wascher, 2004).

The basic limitation of this minimum wage law is that the group having the lowest income is not getting any increase in their income. The reason is that the poorest people are relying on the pros, and thus, minimum wages will not affect them (Hendrickson, 2014).

The Benefits Offset The Drawbacks Up To An Opinion

According to some research, the minimum wage assists in increasing job openings in any economy. Companies may find other methods to offset this increase in labor cost by reducing the working hours of laborers or by increasing product prices.

However, the benefits of these laws offset the cons only if the rate of minimum wage is not too high. The flexibility of business should not be reduced because of wages, as employers will reduce labor costs during the economic downturn. While setting a range of minimum wage, a sweet spot should be found by the government between worker protection and providing businesses the flexibility they require to stay competitive in the market (Source: “Sense and Nonsense About Minimum Wages,” The Economist, November 10, 2012.).

Considering the supply and demand where there is an equilibrium for the economy, minimum wage performs just like the price floor. The mechanism of the price gets disturbed if the wage level is higher than the equilibrium, which means that the market is not clear, and workers find it difficult to find a job. The non-price competition will arise, such as worker’s age, personal connections, or experience would replace the price competition, making it tougher for unskilled or younger workers to find jobs. This simply means that minimum wage policy would have negative effects that will cause too much damage to the labor market.

References

Abowd, J. M., Kramarz, F., Lemieux, T., & Margolis, D. N. (1997). Minimum wages and youth employment in France and the United States. Cambridge: National Bureau of Economic Research, Inc.

Amadeo, K. (2017). What Is the US Minimum Wage? Pros, Cons, and Facts. Retrieved from https://www.thebalance.com/us-minimum-wage-what-it-is-history-and-who-must-comply-3306209

Hendrickson, M. (2014). The Minimum Wage Nonsense Impedes Economic Progress. Forbes. Retrieved from https://www.forbes.com/sites/markhendrickson/2014/01/21/the-minimum-wage-nonsense-impedes-economic-progress/#632fad436646

Neumark, D., Schweitzer, M., & Wascher, W. (2004). Minimum wage effects throughout the wage distribution. Journal of Human Resources, 39(2), 425-450.