The Minimum Wage Law - Term Paper Example

The Minimum Wage Law Introduction The Minimum Wage Law is an issue that defines the line between the conservative/liberal economic ideology and boss/worker relationship. The subject evokes strong emotions on each side of the political and social divide producing contentious, seemingly irresolvable debates. Since its enactment 71-years ago, effects of the law have yielded conflicting results. This circumstance has resulted in a polarization of opinion between economists, politicians, employers, social activists and the general public as well. Legislators passed this depression-era law with the promise of creating a minimum standard of living for workers and their families. Their intent was to establish a national minimum standard of living and stabilize the economy by regulating pay of the poorest social class. The outcomes from this grand experiment are varied. Social activists maintain that it prevents greedy businesses and heartless corporations from exploiting the lowest wage earners. Economists hypothesize that it may actually reduce employment and deepen the wounds of poverty. Politicians seek to justify the law to constituent consumers and small business owners (many of whom pay must pay part-time workers above their market value). This paper will examine issues surrounding the Minimum Wage Law. Genesis and Consequences Minimum wage’s ability to strengthen the economy remains subject to intense analysis and research. Legislators intend the law to provide workers and their families with a livable wage, yet many question whether it achieves that or whether it fits into our free market society. The New Deal and its associated recovery programs were viewed by some as "a drastic control of capitalist exploitation, involving a socially planned economy in which the depersonalized pursuit of private profit is subject to check at a thousand strategic points" (MacIver 836). In spite of these goals, traditional capitalists contend that the law contributes to inflation, creates unemployment, and harms small businesses. Some go so far as to call it unconstitutional and counter to the spirit of free market economics. Regardless of whether minimum wage fits into our free market ideology, leaders have an obligation to implement policies that offer significant overall benefits to the good of its citizens, especially those in the most need. This leads to three questions about regulating base pay: First, is it necessary to alleviate suffering, hunger, or inhumane hardship? Second, is there a significant economic reward gained by the employing individuals at a minimum cost? Third, can the same outcome be reached by a method that is less intrusive and coercive? This research will establish that minimum wage offers little economic reward, is overly coercive, and may in fact be a net negative gain for all the stakeholders involved. Relevant Philosophical Issues Part of both the controversy and intrigue of minimum wage is that it runs counter to the current of our free market society. Few other commodities remain as regulated as the market for labor. For example, while government may grant agricultural subsidies during unfavorable years, most are viewed as barriers to free trade. In general, economists regard the government subsidy of business as an unfair practice in today’s global marketplace. Economists also argue that subsidies exploit the consumers’ buying power while giving incentives for the producer not to produce instead of submitting them to free market influences which would drive consumer costs down. Regulating wages on an ‘across-the-board’ basis takes away the flexibility to control all expenses which businesses must have to compete on a global scale. Employers are forced to subsidize employees with standardize wages often find themselves at a disadvantage against other competing global regions which are not burdened by government interference. This restriction on corporate freedom even damages worker rights. William Howard Taft once wrote that "Legislatures in limiting freedom by contract between employee and employer by a minimum wage law proceed on the assumption that employees, in the class receiving least pay, are not upon a full level of equality of choice with their employer and in their necessitous circumstances are prone to accept pretty much anything that is offered" (qtd. in Woloch 163). The worker who wishes to bargain for his own labor remains unable to do because restrictions are already in place. Put differently, a basic problem with the minimum wage is that it applies to everyone indiscriminately regardless of individual situations. While pay regulation intends to instill fairness in worker/employer negotiations, the law seems to have the opposite effect. The Economic Reasoning and Effects of the Minimum Wage Contrary to Free Market A critical question surrounding minimum wage is whether or not it discourages employers from hiring low level and unskilled workers. The basic law of free market economics states that "a price artificially raised tends to cause more to be supplied and less to be demanded than when prices are left to be determined by supply and demand in a free market" (Sowell 163). A higher base pay will attract more workers that may otherwise choose not to work; however, the increase in the number of employed will generally be a not be a family’s core wage earner or the family’s base income source. In spite of expectations, these workers typically consist of people seeking a second job, summer employment, or part-time work. From an economic standpoint, a business cannot remain in business if it is forced to pay wage rates above what employees return in revenue. According to Sowell, "Making it illegal to pay less than a given amount does not make a workers productivity worth that amount – and, if it is not, that worker is unlikely to be employed" (Sowell 163-164). The employer becomes forced to either lay someone off or reduce the wages of other workers to subsidize the minimum wage earner. Regulated Wage Hurts ‘Working Man’ The debate surrounding base pay regulation has intensified amid the current climate of battling unemployment, fighting inflation, and resuscitating small businesses. The minimum wage is set to increase again on July 24, 2009 to $7.25, a $2.10 increase affecting 12.5 million workers (Fox 1). Supporters claim that this remains insufficient and have called for steeper rises in the pay scale of the lowest paid workers. In 2004, Democrats in the US Senate favored wage hikes proclaimed, "Low-income workers have faced greater poverty and even growing hunger, while corporations and wealthy Americans reaped the benefits of multiple tax breaks and saw profits soar" (Minimum Wage). Critics of the increase counter that most minimum wage earners are part-time workers, new entrants, and middle-class teenagers working summer jobs to earn some extra spending money. (Even and Macpherson ii). Because of the minimum wage the income ratio of the family man full-time worker and the part-time teen are close to the same though the teen has a lower value in the free labor market. As a result, the full time employee remains disproportionately poor in relation to other workers and to his/her worth to the economy. Additionally, businesses bear an additional $50 billion per year in labor costs due to the minimum wage law, money it could have used to expand and hire other employees. The high cost of benefits for full-time workers also factors into the wage shifts. If businesses utilize a large unskilled workforce, they will only continue hiring employees until the workers marginal revenue matches the marginal labor cost for those employees (wages plus benefits). When the minimum wage increases, the marginal labor cost rises and the employer must either "reduce employment until marginal worker productivity is increased by a sufficient amount, or reduce the non-wage part of compensation" (Simon and Kaestner 54). Conclusion This intense debate rages on as economists, politicians and advocacy groups spin the statistics to support their personal views. Critics of the minimum wage law often fault it for being unjustly representative and re-distributive. Businesses are handed the burden of fighting poverty with their limited resources; however, unlike typical class struggles, the strongest advocates of the law are not the poor. For social activists, the minimum wage law reflects a work of good intentions with severe consequences. For political conservatives, regulating base pay contradicts fundamental beliefs in the capitalist ideology. For economists, wage restrictions violate the basic laws of supply and demand and can only harm the economy. Yet, somehow the belief in its benefit prevails and legislators routinely increase workers pay. Even with the apparent lack of proponents, the measure still finds enough support to pass. Ironically, the law is not mobilized by the lower classes or those who stand the most to gain in this apparent class struggle. Rather, it is the labor unions that provide the necessary momentum to sustain the rising minimum wage. Put differently, the conflict over the minimum wage is a struggle between labor and management without any regard for rational economics or the plight of the class that it is meant to serve. The minimum wage law ultimately extracts wealth from the lower classes in a variety of ways. It results in higher unemployment when employers are forced to lay off workers in an attempt to reach equilibrium for their labor costs. While one would expect employers to cut benefits to accommodate, that simply is not the case. Workers are burdened with shorter hours, less overtime, higher production demands, and increased disciplinary measures. Worst of all, the wealth extracted from the lower classes is not redistributed. It is pulled out of the economy and remains dead wood. Meanwhile, the wages still do not raise families out of poverty. Outline: I. Introduction II. Genesis and Consequences III. Relevant Philosophical Issues IV. The Economic Reasoning and Effects of the Minimum Wage A. Contrary to Free Market B. Regulated Wage Hurts ‘Working Man’ V. Conclusion Works Cited Even, William E., and David A. Macpherson. “Wage Growth Among Minimum Wage Workers.” Washington, DC: Employment Policies Institute. 1-18. (2004). Fox, Liana. “What a New Federal Minimum Wage Means for the States.” Economic Policy Institute Issue Brief 234 1-2. (June 1, 2007). MacIver, R M. “Social Philosophy.” The American Journal of Sociology 39.6 835-41. (1934). "Minimum Wage." "Democratic Staff of the Committee on Health, Education, Labor and Pensions Committee United States Senate" Almanac of Policy Issues. (July 1, 2004). US Senate. April 27, 2009 . Sowell, Thomas. “Basic Economics: A Citizens Guide to the Economy.” Cambridge, MA: Basic Books. (2004). Woloch, Nancy. “Muller v, Oregon: A Brief History.” Boston: Bedford St. Martins, MA. (April 15, 1996). Read More