History and Impact of Minimum Wage vs Unemployment - Example

History and impact of minimum wage vs. unemployment

Table of Contents

Introduction3

Analysis4

Discussion10

Conclusion14

• Introduction

Minimum wage is the lowest payment that workers may legally obtain from employers. Minimum wage has a direct impact on unemployment. Rise of minimum wage would affect low wage workers because it would eliminate some jobs. Several economists have raised their concerns towards the increase of wages because they believe that the business firms would have to reduce labors in order to maintain their expenditures. In the year 2013, President of America, Barrack Obama took initiatives to increase the hourly wage of full-time workers. This idea could not be implemented because many Republican leaders proposed that it could have a direct impact on the employment of workers. There are many arguments that have been carried out by economists and researchers in this field. It has also been observed that unemployment rates fluctuates with the increase or decrease of minimum wage however there is no specific record in the past that could prove that rise of minimum wage increases unemployment. Therefore, the relationship between unemployment and minimum wage is hard to recognize. The conventional economic analysis is not applicable in several circumstances because increase in the wages of old employees and boosting up their efficiency has been a powerful business management strategy.

There is a wide range of views among modern economists regarding the impacts of salary increment. Although, it is significant that minimum wage should be high in a country because it determines the country’s development. However, employment factors are also essential for economists and political groups to consider. This paper supports the thesis statement.

Thesis Statement

Increase in the minimum wage of workers has negative effects on employment and economic stability.

• Analysis

In the modern world, there are many situations wherein it has been evident that rise of minimum wage does not have much effect on poverty of people. Economists and researchers have mentioned that the increase of minimum wage would initially benefit the workers. However, the taxes paid by the workers would also increase and it would not allow them to the access of several benefits provided by the government. Ultimately, the rise of minimum wage would only have impact on the employability of the nation. For example, if a single mother of a child experiences increase in her hourly wage from $7.25 to $10.10, then she would be entitled to a marginal tax rate of 91 percent (Neumark 222). Several studies in this field confirm that employment may be hampered due to increase in the minimum wage but it does not have the potential to reduce poverty directly from a nation. In order to eliminate poverty, it is essential for the government to implement new strategies that could benefit workers and their families.

History

In the year 1938, Congress established the minimum wage policy as a part of the Fair Labor Standards Act. It has been recorded that the first standard minimum wage was set up to be 25 cents per hour in United States. Later on there were many variations in the minimum wage. The minimum wage has also been increasing constantly due to the rise of the price of goods, inflation and rise of expenditure. Over the last 65 years, minimum wage has varied consistently due to inflation-adjusted buying power. During the nineteenth century, there were several efforts made by the governments in order to maintain a uniform minimum wage. Initially, it was difficult for the business organizations as well as political administrations to implement such laws. However, in the 20th century, several laws were recreated and new regulations were made in the entire world. It has been evident that the industrial revolution had great impact on the development of uniform minimum wage in the entire world. In the United States of America, the minimum wage law had several positive effects towards the development of the nation. The uniform minimum waged laws, not only had positive impact on social developments but also had positive implications towards economic development.

The Republican party of the United States has raised several concerns towards the growth of minimum wage because they believed that the rise of minimum wage had the potential to reduce the number of employees from several organizations, who would find it difficult to pay more salaries to their workers. There have been many conversations and arguments regarding the issue however the proper solution regarding the rise of minimum wage has not been discovered. The debate on the rise of minimum wage and unemployment is still in picture. The following graphical data illustrated below, describes about the impact of real minimum wage on unemployment rates:

The statistical data mentioned above illustrates that between 1950 and 2013, there has been huge variations in the unemployment rates. It is also clear that, with the rise of minimum wage, the unemployment rate has also increased slightly. There can be many reasons behind the unusual differences in the employment factors however some of the scholars and economists have constantly stated that minimum wage is directly proportional to unemployment and it can have tremendous impact over the economic development of a nation. The statistical data has been collected from the Bureau of Labor Statistics and it represents two different groups of workers. Since, the vulnerability of jobs is high among the workers belonging between the age group of 16 and 24; the unemployment ratio has to be calculated separately for the two separate groups of workers. It has been significant that the workers belonging from the age group of 16 to 24 are majorly part-time workers. The full-time workers on the other hand have similar facilities and remunerations as the workers belonging from the lower age groups. It has been evident that the inflation rate was very high in the past compared to that of the modern world. Due to high inflation rates, the minimum wage of workers increased drastically (Ciment 1173). In the last 50 years, the rise of minimum wage resulted in the occurrence of some unemployment. The workers who were employed on a full-time basis were affected highly because they were unable to find employment after being terminated. On the other hand, the business organizations were previously interested to hire the young workers because they could be hired at cheaper rates and molded according to the requirement of the business entrepreneurs. Therefore, economists in the modern world have made many arguments against the rise of minimum wage.

Impact of minimum wage on unemployment

The supply and demand factors show significance towards growth of unemployment. It has been observed that the price floor above equilibrium wage should cause unemployment. There are many people who have provided their arguments against the fact. However, it has been observed that whenever there has been a rise in the minimum wage of workers, unemployment rate goes very high. For example, an organization has to maintain its expenses as well as its incomes. Due to rise of wage, Companies can become more selective. This situation is not appropriate because it excludes the low skilled employees from employment opportunities. Since full-time workers could get affected due to the minimum wage laws, it has been deemed necessary that the increase of minimum wage is not done. Furthermore, with the rise of minimum wage, greater number of people would show their desire to obtain jobs towards the minimum wage however there would be lower number of opportunities to get employment. This factor would result in maximum number of unemployment cases. Due to the rise of minimum wage the quantity of the number of low skilled workers would fall and finally it would affect the economic growth and stability of a nation.

The graph represented below shows the relationship between minimum wage and unemployment.

The graph explains that the relationship between unemployment and minimum wage based on statistical representation. It is therefore clear that with the rise of wages, the supply of labors would increase because more number of workers would attain the tendency to work and earn their capital easily. The concept of rise of minimum wage is known as the ripple effect. The ripple effect signifies that the minimum wage would ultimately have a direct impact on the price of commodities. The price of commodities increases every year based on the total GDP and ability of people to spend capital (Marshalle 189). Minimum wage also has a direct impact on the premiums and taxes. The rise of minimum wage would also have significant effect on the taxes paid by workers. Rise of minimum wage due to inflation related market situations have negative impacts on the workers because they have to purchase products by paying extra money on the same time they also have to pay extra premiums. Many researchers in this field have also raised their concerns by stating that the rise of minimum wage would have a direct impact on small businesses because it might be difficult for them to pay more money for the job. These factors can also result in dissolution of small businesses. Therefore, the decisions made on increasing minimum wages should be taken wisely after studying the challenges thoroughly.

In the contemporary era, business organizations need to emphasize on the different expenses that are necessary in order to execute business operations. The rise of minimum wage of workers would have tremendous impact on the expenditures of the business organizations. In order to retain the extra investments, the management of majority of the organizations tries to show low interest towards the workers. The organizations also try to make the workers work for fewer hours. Therefore, it has two major impacts on the economic stability. First of all, the organizations profitability becomes a matter of concern. Secondly, the organizations do not show interest towards hiring required number of labors in order to save excess capital from being drained out. On the other hand, several economists such as Alan Krueger and David Card stated that rise of the minimum wage has positive impact on business as well as employment. Based on the research conducted by Krueger and Card, rise of minimum wage did not have any impact on unemployment. Based on their explanations, it has been clear that in United States, the rise of minimum wage had positive impact on the employees of the restaurant. Similarly, many other economists have tries to illustrate the positive impact of minim wage for workers.

Several economists on this field have also stated that the minimum wage increase and unemployment concepts are completely different from each other. The belief related to rise of unemployment due to increase of minimum wage is a grounded belief and it can only be possible in a rigid cost structure. However, the business market is not rigid, wherein costs are shifted constantly. The service industry would gain immense profit by minimum wage increase because it would motivate the workers of the service industry to work more ant maintain healthy relations with customers. This factor has the potential to maintain a sustainable business environment.

• Discussion

One of the basic premises of economics is that demand decreases when prices increase. For example, the demand towards goods and services reduce drastically when the costs of products and service charges increase. The economists in the modern world have concluded that the increase of the minimum wage would also affect the demand of labors in the market. There needs to be a sustainable proportion based on which labors can be hired and the demand of labors in the market stays equivalent. Apart from the virtual theories, modern economists have not limited their study in a specific direction. In the United States, majority of the minimum wage workers belong from the age group of 16 to 24, which means that they are temporary job holders. The full time workers subjected to minimum wage are lower in numbers in the United States and UK. Therefore, a slight increase in their wages would not make huge economic shifts. However, there should be an appropriate ratio based on which the rise of wage can be found to be appropriate. Currently, there are many ongoing debates on minimum wage and unemployment because in the mid of 1990s, about 10 percent increase was made in the minimum wage. After the implementation about 2 percent teenage workers became unemployed. Therefore, the economists have raised their concerns because the loss of jobs can become serious trouble for the country. Since United States is a nation wherein people have multiple choices and scopes for work, the chances of unnecessary failures is less. However, in the developing nations, these factors are very important.

The rise of minimum wage can have drastic effects on the employment sector. The CBO of United states had estimated in the year 2013, that the $9.00 option would have the potential to reduce about 100,000 jobs including the jobs of teenagers (Perris 505). However, the rise of minimum wage would also help many families to extend their capacity towards their needs. These are the two main factors that have surrounded the world regarding the rise of minimum wage. According to the conventional economic analysis, there are basically two ways by which rise of wage reduces employment. First of all, rise of minimum wage would increase the production cost In order to neutralize the loss, business organizations, try to collect the extra amount from consumers by raising the price of their products. This factor reduces the interest of the consumers towards purchasing expensive products. The organizations have to control their production and manufacture fewer products which require fewer labors. Due to this factor both high wage labors as well as low wage labors experience loss of employment.

Secondly, the minimum wage increase raises the production costs for employers. Due to this factor they try to invest in new alternatives such as usage of technology and machines wherein production could be done at cheaper prices. With the help of technology, employers would be able to manufacture the goods at proper prices and sell them to consumers at appropriate prices (Docherty 184). This factor would reduce the efficiency of the labors and finally there would not be much requirement of extra workers. In such situations, the business organizations would terminate the employment of high-wage workers and retain only the low-wage workers.

Rise in minimum wage has several impacts apart from unemployment. The minimum-wage workers would have to pay more taxes and receive fewer benefits if they are subjected to rise of minimum wage. The federal marginal rate for tax is 32 percent on an average for low earning members. This would amount to almost one third of the income of a worker. The tax rate is quite high for low paid workers. The rise of minimum wage would also reduce some of the advantages and leverages that the low-wage workers enjoyed previously. In United States, the increase of minimum wage for workers would have some disadvantages including paying payroll taxes and payments for Social Security and Medicare (Clark 445). The economists have therefore stated that the minimum wage should be an amount that could meet the basic needs of a worker and it should not be increased unnecessarily without proper inspection because it could have negative impact in the life of the workers. The marginal tax of 32 percent does not include the benefits of Medicaid coverage services. However, the benefits of minimum-waged labors would definitely reduce as a result of slight increase in the minimum-wage.

Majority of the people believe that workers should be paid the amount that they are worthy of getting paid. In a free-market economy, the salaries of different persons should be different. For example, the salary of a 16 year old boy should not be similar to a 30 year old lady or single mother. There should be some differences on the payment. These differences should be pre-determined and based on such regulations the entire workforce sector should work. However, the real-time consequences are significantly different compared to that of the hypothetical situation. If there are differences and discriminations in payments based on gender or age then there is a high possibility of social dispute and disorder in the society. In order to avoid such issues, the uniform wage law had been implemented. The economists and the political groups have been constantly studying the different aspects of minimum-wage and its impacts if increased. Since unemployment is one of the biggest challenges in many countries, it is essential that this issue does not affect the United States. The primary work of the US administration is to recognize the problems that can cause economic problems and sort the issues in order to enhance the life of every citizen.

The statistical data shown below describes about the hourly paid workers earnings below Federal minimum wage:

Since the Great Depression, the federal minimum wage has been in effect. Currently it has become a hot contested issue. The graphical study presented above signifies the wage distribution among male and females in percentage. The data also shows different age group of people working in the United States along with the number of persons drawing lower amount of salary. This study is important because it helps to understand the significance of the rise of minimum wage on employability. Rise of minimum wage could have huge impact or almost no impact on small scale businesses, based on the type of business and the number of employees. Therefore, the statistical data can provide a general outlook rather than descriptive information. However, it has been evident in the past that whenever there is inflation related occasions, the minimum wage gets increased because the people of US are given many priorities that are not visible in several other nations. Government should implement wage policies in order to conduct t in-depth analysis before incorporating new wages for workers.

• Conclusion

From the above discussion it is possible to state that; rise of minimum wage has several negative impacts on economy and employability. The uniform wage legislation was implemented in the year 1938 by President Roosevelt. Based on the minimum wage policy, certain amount was fixed during the period as hourly minimum wage for every employee. Currently there are some debates that have emerged in the world with the rise of minimum wage for workers. It has been evident that the increase in the minimum wage of workers can lead to unemployment. The unemployment issues have increased at present due to the rise of minimum-wage. The business organizations in the modern world act in two ways due increase of minimum wage of labors. Either the technology or the machines are preferred over the workers, which reduces the need of workers in the organization or the workers with low salaries are preferred over high salaries in order to control the expenses. With the increase of minimum wage, the demand of workers in the industries might suffer. The economists and the political factions have raised several concerns regarding the unemployment issues that can generate as a result of rise in the minimum wage. The rise of minimum wage can affect the life of workers in many ways. The workers would have to pay more amounts of margin taxes as a result of increase of payment; moreover they would have to opt for chargeable medical facilities such as Medicare. The family expense of the workers would also increase. Due to these factors, the proposal of President Obama in the year 2013 was rejected, regarding the hike of minimum wage. Unemployment is the basic factor due to which the minimum wage rise has been restricted in the world. Therefore, it is clear that rise of minimum wage can have tremendous negative impact on employment of workers and economic instability.