Seattle’s Bold Minimum Wage Experiment
The study of microeconomics encompasses an assortment of units of the economy, how they function and how they reach their symmetry. In this analysis, the paper seeks to use the main theories covered under microeconomics in discussing the Seattle Minimum Wage.
The city of Seattle sought to raise its minimum wage to $15 an hour; a development that some may consider a bold move accompanied with a sense of utopia. In essence, the experiment is an untested move whose effects are unknown. Is it, therefore, prudent to consider a matter reliable if it has no tested truth? Certainly not, but it does raise valid points of which will form part of this discussion.
Firstly, under the theory of Income, Output and Employment, one may elucidate the imminent effects which the raising of the minimum wage will have.
Those opposed to the raising of the minimum wage argue that an increase in the costs results in the reduced sale of the associated commodities. To an extent, the idea is true, however; sales are often determined by how perceptive a buyer is. Studies show that an increase, even minimally still poses the problem of transfers from the employer to the employee which does not aid in curbing the low-wage issue. Thomas Picketty similarly states that with increase in the minimum wage, eventually the negative effects on the level of employment win out and thus cannot continue indefinitely.
The theory of Factor Pricing deals with the resolve of the share prices in land, labor, capital and organization. It, therefore, seeks to explain and determine the principles through which the price of each factor. It is reasonable to state that the pricing factor is functional in meaning as it is distributed amongst the agents of production. From the foregoing discussion it is clear that the increase of the minimum wage will also require an increased need of production, as one cannot be rewarded for that which he has not done. The results of this increase will result in the automation of companies, the inevitable replacement of manpower by machines. This will essentially increase production for the company to accrue more benefits.
In addition, there is the theory of Economic Welfare whose purpose is to focus on the best possible allocation of resources and goods and its effects on the society. The question this theory poses is whether an increase in the minimum wage bill is the most potent means to improve the livelihood of the individuals in Seattle. To many, it will serve to create more problems that it tries to solve. The idea of ‘tradable’ jobs will seek to save companies from financial loss at the detriment of the society at large and especially the employees. This will involve the search for cheap labor and subsidiary low skilled workers such as busboys may soon be declared redundant.
It is a well-known ideology among economists who suggest that redistributing incomes in the economy leads to a greater social good. Perhaps this was the main point that was raised when the determination of the minimum wage bill was being decided. Nonetheless, other factors also come to play in the determination of the minimum wage which should consider the prevailing effects it would have on the community at large and other low income jobs in the society.
The need for economic recovery stems from the lack of purchasing capability in our society. This however cannot be achieved through the imposition of untested ideologies whose effects are adverse to the society in the long run. Higher wages will indeed lead to more workers in the workforce but it does create the problem of payment of salaries as well as employers seeking other avenues to save on money. It is, therefore, prudent for other measures to be put in place to improve the welfare of the society through other means other than the minimum wage.
Furthermore, there is no evidence in support that an increase in the minimum wage would improve the economy through consumer purchase. Estimates made while catering for the reduced minimum wage failed to account for reduced business spending, higher prices and decreased number of employment. Research has shown that an increase in the amount in which people earn tends to increase the demand from the consumers. The question, however, that remains unanswered is whether the economic benefits take the limelight of the costs. The increase of the minimum wage will only work to push the economy for a short while and eventually drag it afterwards in the years that follow as would be evident from the negative effects that it would have on the economy. It does, however, remain unsound as to whether it will have any adverse effects on the GDP and eventually deter growth in numerous low-wage sectors. The crux in the matter at hand is that benefits should serve all and not few.
Work Cited
Rampell, Catherine. "Seattle’s bold minimum wage experiment." Washington Post 6 June 2014. <http://www.washingtonpost.com/opinions/catherine-rampell-seattles-bold-minimum-wage-experiment/2014/06/05/a48dd19e-ecdb-11e3-9f5c-9075d5508f0a_story.html>.
