The Pros and Cons of Minimum Wage using Relevant Theoretical Construct - Essay Example

The Pros and Cons of Minimum Wage using Relevant Theoretical Construct Minimum wage is a terminology used to describe employee remuneration where the law requires a set standard, for the least amount of pay that should be given to a worker, for their labors. In the United States of America, minimum wage is constructed around a flat hourly rate where the law specifies the minimum amount of pay to be given on an hourly rate. This law is called the Federal minimum wage bill, which was amended, on July 24 2009, to reset the minimum wage figure to $7.25 per hour. This made it a requirement of all states to set this as their minimum wage limit but this does not make it mandatory because some states exhibit variations of this set minimum. Some states, like California, have higher limits of this wage, which is at $8.00 while others, like Georgia, have wage limits below that federal limit at $5.15 per hour. These differences are made possible, by the municipal and state laws, which make it possible, for individual states to set their own minimum wage limits by exercising their right to enact their own by laws. This enables them to determine the limit of minimum wage, with respect to the economic potential of that a given state because it would not make sense to match the minimum wage with a rich state in terms of resources. This is an analytical discussion about the advantages and disadvantages of the minimum wage policy in the United States of America using a theoretical construct approach. Minimum wage from an economists view is disadvantageous to the market system of demand and supply. This is because when the minimum wage is raised the number of people vying for that job position increase, but the employer’s willingness to offer the position decreases because it is an increase in expenses in terms of salaries. In this scenario, employers would rather delegate the duties to be filled, by the new position to existing employees, than offering the job position. On the other hand, if the minimum wage were reduced, it would give employers an opportunity to create more job opportunities in organizations because they can afford to do so. This would depend on the amount of the wage set because a minimum wage of $1 per hour would not attract anyone, but student workers could consider a $4 per hour. Setting up the minimum wage law disrupted the functioning of supply and demand system because it dictates what employers should pay, instead of letting the two factors standardize the field on their own. Market factors of demand and supply govern the number and type of jobs available along what each job category would pay (Schmidt, 19). Increasing the minimum wage deprives a group of young Americans the much needed life lessons, which can be acquired when one works minimum wage job. This is because these jobs are popular with interns, workers in training and students, which help them, learn early in life how to handle money and relate with people in different circumstances (Schmidt, 16). They instill the values of hard work, responsibility and hard work early in their lives and motivate them to aspire to go to college and acquire advanced skills, which can enable them get better paying jobs in the future. Raising the minimum wage reduces the number of these types of jobs because employers will not be willing to offer these job positions because of increased salaries. This will translate to the emergence of a generation of Americans who have no value for hard work and responsibility, which would be detrimental to the economy of the country. It means that most of the American society in the future will lack a driving force that is essential in inculcating work ethics that are vital to a vibrant economy characterized by a work force that knows and understands the benefits of hard work. An increase in the minimum wage will result in a decrease of job opportunities that offer invaluable experience that is a prerequisite in almost all well paying and stimulating jobs in America. New entrants into the job market are required by most organizations offering job opportunities to have prior knowledge and experience in the professional field they are targeting. Without the existence of low paying jobs where these people can gain this experience then it would result in the wasting if valuable manpower and resources used to impart the necessary skills and knowledge that this people have. Reduced minimum wages would see businesses offer more opportunities to job seekers without any experience making it a win-win situation. Businesses would employ more additional workers at a reasonable price, and the employees would gain the needed experience required to access better paying jobs (Schmidt, 29). Minimum wage reduction or its outright abolition would increase the efficiency of business enterprises. For example, a McDonald’s franchise with a budget of $70 per hour for workers’ wages would mean at the current $7 minimum wage requirement they would have to hire only ten workers compared to a $5 per hour wage when there are no laws dictating minimum wages. The latter scenario would see them hiring 14 workers. Between the two, the one with 14 workers would offer more efficient services and their customer care would be better placed because they would have more workers to attend to clients and offer more personalized service (Schmidt, 12). This also enables businesses to offer more reasonable and affordable prices for its products and services because reduced minimum wage translates to a decrease in a business’ operating costs. Decreased expenses in businesses mean that it can lower the prices of its products and services to attract more customers without risking its profit margins. This would also prove to be beneficial to consumers because the strain of purchasing expensive items and services would be reduced or eliminated. Non-profit making organizations like charities are the most affected institutions by the enactment of the minimum wage bill because they are required to comply with the law. Since the activities of these organizations are primarily to provide services to the community, for example, a shelter for the homeless or a domestic violence shelter where volunteer personnel do most of the work there. Volunteers cannot be relied on to fulfill every task that is required in such institutions, and there are then forced to recruit or offer some form of payment to help sustain these people. Once the notion of payment is forwarded, it must conform to the federal or state laws of minimum wage (Schmidt, 50). Coupled to this is that they do not engage in activities that generate revenue, which can be used to cater for these expenses, they are confronted, by a hard task of outsourcing funds, to maintain their wage bill or face imminent closure. Minimum Wage can drive some small business organization out of operation because they do not enjoy the economies of scale, which large businesses have, for example, Wal-Mart compared to a small neighborhood hardware store. The small hardware makes up for the difference in higher prices it charges by offering better and more efficient services to its clients than Wal-Mart, but a raise in the minimum wage increases the small hardware’s operating costs forcing it to increase the price of its commodities. This will make its clients conclude that shopping at the neighborhood store is not worth it eventually leading to closure of business due to lack of customers. Wal-Mart, on the other hand, will be able to absorb the increased operation costs because it enjoys greater economies of scale. Political interference in the market system, which has seen a more widespread campaign for an increase in the minimum wage, creates a precedent where more business organizations especially the manufacturing and retail sectors opting for automated service delivery. This is because an increase in the minimum wage will force these enterprises to look for other ways of carrying out tasks such as cleaning and maintenance work that is performed by people. Manufacturing industries will instead opt to mechanize to replace people, which will mean loss of jobs by many people. Automation is expensive in the setting up stages, but enterprises are willing to spend the time and money required for the benefits they will accrue in the future. For example, Wal-Mart is in the process of offering automated teller services in its branches, which will translate, to job losses for all the cashiers that are currently employed at the checkout counters. The cost of living is another factor that makes the implementation of the minimum wage law because standards of living vary everywhere. The current minimum wage in America stands at $7 per hour which would be particularly little to a person living in California or New York, but it would be exceptionally high to an individual living in rural Georgia. Thus, this makes it hard to establish a countrywide or universal minimum wage policy that can be fair to all those who are affected. The enactment of the minimum wage law creates a situation where business enterprises prefer recruitment of foreign labor because they can work at lower wages than citizens of the United States of America. This increases the influx of foreign nationals who are preferred for employment instigating the scenario there is a high rate of unemployment of indigenous Americans. This also contributes to decreased revenue in the form of taxes because most these workers are illegal and do not pay taxes which affects the economy of the country negatively. A reduced minimum wage requirement would mean an increase in tax revenues and the rate of unemployment would go down. A reduced minimum wage would also translate to a reduced influx of foreign nationals into the country who contribute to lawlessness and insecurity in the country. Minimum wage contributes to America’s ever-increasing trade deficit. This is because setting up a wage limit puts the country’s manufacturing industry at a disadvantage compared to other foreign manufacturing entities. This comes about when the minimum wage forces companies to employ fewer employees a circumstance that might affect the efficiency of production and quality of the products damaging the reputation of American products abroad. An increase in wages means a rise in the labor component of the production process and the costs are transferred to the price of the item. This takes the competitive edge out of American products thus the demise of the country’s manufacturing industry and an eventual augmentation of America’s trade deficit. The advantages of the minimum wage law are that they help protect the jobs of people who genuinely need these jobs because, without it companies would be hiring immigrants and students who would work for less than the minimum wage. This means that adults who have families to support would be eliminated in favor of people demanding lesser pay yet they have little use for the money and obligations to meet. It ensures that workers are able to meet their basic daily requirements for survival because it would not make sense for a working person not to be able to pay their essential bills like rent and buy food and clothing. Workers in cities like New York and Washington DC would not be capable to cope on a salary that is determined by their employers because it would be too low to sustain them. This is exemplified by some states enacting their own minimum wage requirements in line with standard of living that exists there. It also helps check the abuse of power by businesses because if left unchecked they would exploit their workers to maximize profits (Schmidt, 60). Minimum wage is a basic requirement in today’s world because it serves the purpose of protecting workers and improving their standards of living. Under social considerations, the minimum wage law is beneficial because it curbs exploitation of the people by corporations, but from the economic point of view, it hurts the US’ economy. The formulators of minimum wage policies should strive to design laws that are well balanced putting the interests of the economy and the people in focus. Work Cited. Schmidt P. Minimum Wages and Employment - Theory and Empirical Evidence with a Special Emphasis on Germany. GRIN Verlag, 2009. Print. Read More