The Effects of Raising Federal and State Minimum Wage - Essay Example

The Effects of Raising Federal and Minimum Wage Background The cost of living is increasing in America and households are becoming more desperate. Workers are paid lowly in many industries. The issue of raising minimum wage has dominated the political and economic events in the country for long. As such, the United States government has placed a wage floor of $7.25 an hour in order to tackle the low wage problems in the country. The condition implies that no worker should be paid less than 7.25 for every work hour. The action has led to both positive and negative effects. The paper seeks to examine the effects of increasing minimum wage in federal and state jobs. The effects are analyzed from the perspective of employees, employers, and the government. Each of these players has a different view regarding high minimum wage. Method The paper uses an exploratory approach to finding relevant facts related to the study. Sources such as books, press releases and Low Wage Commission reports were perused in order to strengthen the understanding of the concepts at hand. Effects of minimum wage Eradication of low-wage jobs Jobs whose value cannot be sustained in the face of the minimum wage are likely to be eradicated. Employers may fail to pay the high wage rate for jobs that are not essential to a company. Scaling back the number of employees will in turn increase social dependency. Also, it reduces the purchasing power of individuals thus stalling economic growth. Increased economic growth High wages stimulated mass consumption because people have more purchasing power. Mass consumption leads to excess demand. In order to satisfy the demand, industries expand and also start new plants. The effect is an increase employment and also the national income. Raising the living standards The calculation of minimum wages considers the severity of inflation and other economic conditions. As such, setting a high minimum wage places all the employees above the poverty line. The minimum wage is set at a value where people can afford the necessities to live a comfortable life. All these add up to better living standards. Prices According to Waltman, business costs increase as a result of an increase in the minimum wage. Some business are unable to maintain the high cost of human resources (19). As a result, they tend to increase the prices of commodities in order to maintain their profitability. Income distribution A 2010 study conducted by the Low Pay Commission of the UK concluded that high minimum wage reduces the wage gap between the highly paid and the lowly paid workers (39). The Commission found that 40 percent of the lowly paid workers were moving towards the middle-income status. Conclusion The above discussions show that the benefits of a high minimum wage outweigh the demerits by far. The essence of government is enhancing the living standards of its citizens. Thus, boosting the living standard should come a priority. Also, economic growth as a result of high purchasing power improves the national income. An increase in national income results into expansion of businesses. Although a high minimum wages may force employers to scale down their human resources or raise the prices, the benefits stated above are far reaching and more beneficial to the country (Newmark and Wascher 191). Works cited Low Pay Commission. National Minimum Wage: Low Pay Commission Report 2010. London: Stationery Office, 2010. Print. Neumark, David, and William L. Wascher. Minimum Wages. Cambridge, Mass: MIT Press, 2008. Print. Waltman, Jerold L. Minimum Wage Policy in Great Britain and the United States. New York, NY: Algora Pub, 2008. Internet resource. Read More