Introduction
Wages are the compensation for the time and hard work employees provide to the company. The answer to whether an increase in the minimum wage has positive or negative effects on a country’s economy has been given differently by most economists in the world. Let’s first understand the meaning of minimum wage. Minimum wage is defined as the lowest amount given to an employee hourly, daily, or monthly by employers. It is the smallest amount the employees get based on their services and market conditions. Before minimum wage was introduced, employers took advantage by paying less to women and children.
In most countries, employees are now protected by law to receive a minimum amount for their labor in jobs. Minimum wage regulations give the perfect example of price control as it varies with the market. This variation appears in the form of reduced employment, affecting employers paying more to their employees. The advantage of higher minimum wages is that they help poor employees and increase the overall financial strength of employees. Their significant disadvantages are that they may discourage employers from hiring workers at a low wage, which further results in unemployment. However, the increase in minimum wage is never assumed to provide a “free lunch” to the employees.
The analysis done by Neumark and Wascher (1992) shows that minimum wages mainly affect young employees and teens and affect the unemployment rate. Some studies have shown that the employment rate and minimum payments do not negatively or positively impact each other. Krueger (CKK) explains these contradicting explanations by providing statistics. As policy decisions affect the minimum wage study, this discussion needs a lot of statistical research and economic proof. This essay aims to provide arguments against the increase of minimum wages. We will further discuss its social and economic effects and will try to provide suitable evidence for our argumentation.
Discussion
I argue against the increase in the minimum wage. Compelling evidence from some researchers has suggested that imposing high employee wages leads to unemployment. Researchers have given the strongest indication that setting the minimum threshold of salaries resulted in a decrease in the number of jobs for inexperienced employees. If jobs that demand a high level of skills are subject to an increase in minimum wage, their standards for skills in employees increase readily. Higher minimum wages have proved to be ineffective in improving the financial status of communities.
To understand the effect of minimum wages on employment, we will use the research by Card and Krueger (1994). Imposing minimum wage standards decreases the demand for inexperienced employees and increases the demand for experienced professionals. If any company needs employees and the minimum wage is high, it will prefer selecting candidates with more experience and skills rather than those who are new to the field. When this condition arises, many companies fire their inexperienced workers as they consider them a liability. The most adversely affected group is the inexperienced, and they suffer the most as a result of the increase.
Now, let’s look at its economic effects. For some industries, an increase in minimum wage increases marginal costs. The companies’ actions in such a scenario are to cut employees’ working hours and decrease their monthly earnings. Another issue called “Pay leapfrogging” is the increase in wages for existing employees to maintain the difference between their wages and the minimum wage. Let’s look at it with the help of a study. In a survey made in 2004, 520 companies were surveyed, and their production and costs were analyzed. It was observed that the increase in minimum wage dramatically increases costs, and most groups, to balance out the expenses, cut five hours of employees’ work weekly, resulting in a total of 11,563 pounds per year, which was not enough to make a standard living.
Minimum pay should not be increased as it has various social effects. According to an economist, high benefits and less compensation lead to a society that manipulates the system and tries to enjoy the benefits. Increased minimum wages also cause issues in a country’s politics, as we see that when the minimum wages were increased in the UK, due to the resulting unemployment, most people tried moving to other European countries to get better chances of jobs and earn their livelihood. The cost of living in the UK was also a factor in the increase in wages, but with the rise in unemployment, the employees had to move to other countries to make a living. An increase in minimum wages and unequal pay distribution is also a reason for social injustice and poverty among unemployed people and results in depression and hate for the government. With the increase in wages, there is always an increase in taxes, which eventually results in a decline in the social status of the country.
Looking at some of the positive effects, there are many employees for whom a job means living. For people living in poverty, an increase in wages pushes them to keep up with inflation and the increasing cost of living. Its application has also resulted positively in some countries like America, where increasing minimum wages helped overcome poverty in specific areas. Some factors like tax credits, when lower than the earnings of poor people, improve the financial status of the people. It increases citizens’ respect for the government and makes them think of the state as a help in their time of need. It also decreases the financial difference between the rich and the poor. In a study, it was observed that increasing the minimum pay increased employee retention. This study described how an increase in minimum wage increased pay rates and motivated workers to work more productively. With the addition of motivation, the businesses flourished as the employers did not have to invest more in training new employees; this helped in the expansion of companies.
Conclusion
In my opinion, low wages lead to a direct rise in the financial status of poor and low-income people. Higher minimum wages help desirably to increase the economic stability of the country. Still, they also result in some negative factors that are more critical and important in a country’s policies. The minimum wage has both negative and positive effects. However, after considering the negative factors, the arguments against it seem more powerful than the ones in favor. From society’s point of view, it is beneficial that minimum wages increase. Still, the economic structure of the whole country and people in business are negatively affected. However, there is little evidence to support the fact that increasing minimum pay increases the financial stability of nations. It has been proved that minimum wage discourages employers from using very low-wage employees and supports those with skills and experience. However, looking at the big picture, the evidence we collected from these researchers helps us believe that an increase in minimum wage had proper short-term but adverse long-term effects. For a country’s economy, the long-term benefits matter more.
By this conclusion, I am against the increase of minimum wages.
References
Stigler, G. J. (1946). The Economics of minimum wage legislation. The American Economic Review, 36(3), 358-365.
Brown, C., Gilroy, C., & Cohen, A. (1982). The effect of the minimum wage on employment and unemployment. Journal of Economic Literature, 20(2), 487-528.
Neumark, D., & Wascher, W. (1992). Employment effects of minimum and subminimum wages: panel data on state minimum wage laws. ILR Review, 46(1), 55-81.
Card, D., & Krueger, A. B. (1993). Minimum wages and employment: A case study of the fast food industry in New Jersey and Pennsylvania (No. w4509). National Bureau of Economic Research.
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