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

Minji Kim Earl Scott Business Regulations and Practices 3/28/15 The Effects of Raising Federal and Minimum Wage Table of Contents Background 2. Method 3. Effects of minimum wage on: a) Eradication of low-wage jobs b) Employment c) Increased economic growth d) Raising living standards e) Prices f) Income distribution g) Poverty h) Budget deficit 4. Conclusion Background The cost of living is increasing in America and households are becoming more desperate. Workers are paid lowly in many industries. The topic of setting up the 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 get 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 get 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 have gotten perused so as to strengthen the understanding of the concepts at hand. Effects of minimum wage Eradication of low-wage jobs Jobs whose value cannot get sustained in the face of the minimum wage are likely to get 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. Low-wage jobs are likely to get eradicated since the small job opportunities that offer the low-wage jobs have a limited payroll budget. The payroll funds cannot and may not offer their most valuable employees the fair and attractive wages of unskilled workers, and this would result in the eradication of such jobs. The Neoclassical economists posit that as the labor prices increase, the employees would demand less work and thus this may result in the elimination of the low-wage jobs. Likewise, the minimal wage rate would result in a reduced demand for workers, either as a result of the reduction in working hours or through the reduction of job opportunities. Critics as well hold that raising the minimum wage rate, slows down the rate of the creation of low-skilled jobs in an economy. As a consequence, therefore, job opportunities get shifted to other areas, states and nations that contribute to lower cost labor. In the long run, the move results in a higher long-term unemployment rate. Employment: An increment in the minimum wage rate will eradicate low skilled work; hence, encouraging unemployment, although this has a little effect on most employers. The inquiry into the query concerning whether increasing minimum wage rate reduces employment rates is a question that has been on study in most economies. However, the studies have displayed that raising the wage floor boosted incomes without reducing employment or slowing job creation. Besides, an increase in the minimum wage rate would result into an increased consumer demand thus contributing to the conception of more job opportunities hence spurring economic growth. Even so, critics bring forth to play the notion that beefing up the minimum wage rate would slow down the rate of job creations. As a result of the low job creation, the low-skilled workers would lack job opportunities and get unemployed. Besides, job opportunities as well, get shifted to other regions and nations that contribute to reduced labor cost. As a result, the unemployment rate grows and becomes high. Increased economic growth High wages stimulates mass consumption since 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 in employment and also the national income. Economists’ proponents argue that firms may as well pass the cost increment to their customers through raising the price of products. The outcome, however, is more likely within the firms in which demand is relatively more insensitive to increase in prices. Likewise, increasing the minimum wage would enhance the consumer spending of the low wage earners. As a result, therefore, generating additional demand for goods, products and services. The move could result in a positive feedback loop that could enhance further economic growth to mitigate any further adverse employment effect. Even so, the state could be offset, by a step down in demand from the unemployed due to the minimum wage increment. The state may also get compensated by employers whose expenditure power for fresh investments is scaled down due to the higher cost of minimum wages. Likewise, employment opportunities increase as a result of the total increase in total consumption and increased demand for goods, which are triggered off by the movement of income from employers to employees. Hence, fostering of the minimum wage rate is an important factor for an economy despite the effects it poses to the economic growth. The federal and minimum wage increase propel the economy of any state through its ability to increase consumer expenditure, without summing to state and federal budget deficits. Consequently, a hike in the minimum wage avails more money into the low-income consumer’s pockets, which immediately spend it at the local businesses, thus spurring economic growth. As a result, the purchasing power is increased, and this promotes the economic growth of the nation as people can purchase commodities, and as well money is in constant supply in the economy. In essence, therefore, strengthening and beefing up the minimum wage of a country can aid in building up a sustainable economic recovery, without increasing taxpayer’s costs. Besides, it is important to bring up the minimum wage rate and assert that its value maintains a certain level over a period. The decision is quite important for the growth of any economy and the measure gets ensured through to the living costs so as to demonstrate a more substantial first rung on the ladder to economic security. Besides, beefing up the federal states’ minimum wage is not only an efficient anti-poverty instrument but also a tried out a way of boosting the economy growth. Several studies evidence display that toning up the minimum wage rate results not in a higher unemployment rate but, however, it rather boosts up productivity. Beefing up the wage rate as well helps in addressing the springing issue in our economy of the rising inequality. Toning up the federal and state minimum wage cumulates to economic growth since it reduces the costly employee turnover while increasing productivity that enhances growth. 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 gets set at a value where people can afford the necessities to live a comfortable life. All these add up to better living standards. Raising the level of the minimum wage would be good for the growth of the economy. A higher minimum wage rate would result in the increase of the worker’s incomes but as well as boost demand and in turn propel the economic growth. Beefing up the minimum wage would also be essential to reducing and lowering down the turnover. Raising it as well, would help cut down on the costs that low road employers impose on taxpayers and push the business towards a high end, and a high human capital model. Surprisingly enough, individual studies as well indicate that raising the minimum wage would result in an increase in poverty levels and consequently low living standards. The studies show that the higher minimum wages would trigger higher unemployment rates, which would results in reduced living standards as household incomes would drop among the low-income families. Furthermore, beefing up the federal and minimum wage increases the earnings of the low-income earners thereby reducing the income inequality gap while availing a disposable amount of money as well. As a result, therefore, the living standards of the low-income earners get raised. Also, as most economies continue to recover, increasing the federal and minimum wage would provide the very required and much-needed rise in the net income of the low-wage employees. 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. Economists argue that increasing the minimum wage rate results in an increase in prices. Right to it, the beefing up of the minimum wage rate, contribute to higher prices for consumers. As a result, the price of products, goods and services produced by low-wage earners, heightens resulting in an increase in the prices on the other hand. Critics as well posit that raising the minimum wage may result in price inflation since businesses attempt to compensate through toning up the prices of the commodities they sell. Studies have indicated that any increase in the minimum wage rate will automatically raise the labor cost other factors of production held constant (Neumark, David, and William and Wascher 62). In essence, therefore, employers may as well decide to increase prices and accept to lower profits. (Neumark, David, and William and Wascher 114). The increase in prices will result in reduced access to commodities by the consumer who will then therefore opt for substitute goods or as well imported goods. As a result, therefore, the move may exclude, do away with or kick out marginal producers. The increase as well in the federal and minimum wage rates of any state, would automatically impact on prices of services getting offered. As a result, therefore, the increase in the wage rate gets paid for by higher prices, and the prices spring up in a fashion that connotes a burden more regressive as compared to the sales tax. Just like all the other price control mechanisms, the minimum wage rates, do impose costs on society and melt off the wellbeing of certain workers and consumers. In case of an increase in the wage rate, employers of affected low-wage workers do face an increase in the monetary values of labor. Likewise, the employees as well get tied up in prices such as payroll taxes. Besides, increasing the minimum rate avails income to the low-income earners and reduces the income inequality. As a result, therefore, there is more money in supply for expenditure purposes. The producers of goods and services, therefore, raise the prices of commodities so as to meet the rising labor charges of their employees. Similarly, the producers of products and services raise the prices so as to be able to reduce the demand of commodities that may be in short supply due to the high purchasing power. Income distribution A 2010 study conducted by the Low Pay Commission of the UK concluded that the higher 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. Besides, high minimum wages increase the living standards of the poor and the most vulnerable groups within the society, thus raising the average and enhancing income distribution. The higher minimum wage as well stimulates consumption through its role of availing the extra money for the low-income earners. The group always spend their entire play checks and, as a result, therefore, increasing money circulation throughout the economy. The reduction in the minimum wage inequality plays a critical role in contributing to a reduced variation I terms of family income, as well as poverty levels. In regards to the family earnings distribution within the United States, research has investigated that minimum wages can hike up the income levels for the lower wage families. The hike could thus result in a better income distribution and reduced income inequality in the country. Beefing up of the minimum wage rates do increase the wages at the bottom of the wage distribution. Likely enough, the wages are raised just above the minimum wage through spillover effects, and in turn the increase in the minimum wages are in all likelihood to result in more low-spirited wage inequality. The situation gets tightened by the notion that minimum wages may do away with some low-wage jobs. Poverty: Increasing the wage rate will push up with many low-income earners above the poverty level; hence, reducing poverty. Economic researchers hold that raising the minimum wage rate will have positive economic effects above and beyond lowering the poverty rate. The various economic research points out to the fact that a more eminent minimum wage does not result in increased unemployment conditions, reduced productivity but also addresses the springing up problems of rising income inequality. Toning up the country’s minimum wage rate is a significant anti-poverty technique despite the fact that several families still lives below the poverty threshold. Besides, increasing the federal’s state minimum wage rate would boost up the earnings of the low wage earners and as a result reducing poverty levels. Various economists have taken up to explore the likely effects of beefing up the minimum wage rate on the rate of poverty. Certain economists have estimated that a ten percent increment in the minimum wage rate would result in an immediate 2.4 percent decrease in the rate of poverty. The increase is also believed to be able to result in an overall 3.6 percent reduction in the long run. The minimum wage is not a silver slug in the battle against poverty. However, any slight endeavor and effort in the step down of poverty and increment in economic mobility at the bottom rounds of the income ladder into the middle class requires encompassing an increase in the minimum wage rate. The burden of economic research and study indicates that beefing up the minimum wage rate would invariably melt off poverty and function in tandem with other poverty slimming programs to encourage income mobility from the bottom up. Studies indicate that approximately 15.2 million low earners employees would benefit from having the minimum wage raised. As a result, therefore, the decision to raise the minimum wage would be a right step towards solving the high poverty rates. Budget deficit: Raising the wage rate will cause some little deficiency in the budget for several years but increase after that. In essence, a step-up in the lower limit wage rate would stimulate economic growth through enhancing consumer expenditure without tallying to state and federal budget deficits. Beefing up the minimum wage rate would result in a small decrease in federal and state budget deficits for several years following. Income inequality: An increase in wage rate means redistribution of income from those high-income earners to low earns. As a result, therefore, reduction of income from high earners to improve the weak ones (Neumark, David, and William and Wascher 27). Beefing up the minimum wage rate would help boost the pay scales in the different types of jobs in which millions of Americans to date spend their careers. As a result, the move would aid in solving the income inequality. Raising the federal minimum wage rate would play a role in boosting the employees pay scales and, as a result, reduce the income differences. The increment in the federal and state minimum wage tends to cause a ripple effect on employees who bring in rewards near the minimum wage threshold. The ripple effect comes to play when a raise in the federal and minimum wage increases the wage received by employees earning slightly above the minimum earnings. The beefing up would, therefore, see an increment of wage earnings of the low employee earners; thereby attempting to narrow down the existing income inequality. 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 in 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