Policies on minimum wages in the United States are common in the headlines in the current era. Globally, it has become a common trend and various countries following the ongoing dynamics in economical trends. In the United States, every job has stipulated wages. These policies are governed by the Fair Labor Standards act. Besides, there are other laws, which operate locally to determine the minimum wages for every job. The main goal of these laws is to ensure that every American who is working is paid fairly according to the work he has done. In America, the minimum wages differ from state to state. The fair labor standards act of 1938 is the first law that sought to ensure that workers are not exploited. The law state that a worker should work for forty-four hours a week and enacted a minimum wage for the workers.
The minimum wages act has several advantages to the economy of the country. First, it ensures that every person who is working can survive in the country. The law seeks to ensure that the citizens can afford basic needs like water, clothing, and shelter. If the law did not exist, some of the businesses would pay the citizens very little money. With the little money, they could hardly afford basic needs like food and rent. This would increase the poverty levels in the country and therefore affect the economy of the country negatively. Laws that enact minimum wages ensure that the poverty levels in the country are reduced. (Waltman, J. L. 2008, 76).
The minimum wages also leads to increased investment. If the workers of a company are well paid, they are likely to improve their services and productivity in the company. Everyone works with an aim of accumulating wealth and having a more comfortable life. When one is well paid, he values his work more. He therefore is more committed to the work since he cannot risk being sacked or losing the job. He therefore increases his productivity and hopes for promotions. (Cunningham, W. V. 2007,58). On the other hand if people are well paid they tend to diversify and invest on their own businesses. People who have previously been employed start many businesses in America. With the good pay from their respective jobs, they are able to start their own entrepreneurial ventures. These ventures not only offer more jobs for other people but also ensure that there is continuous development in the country.
Minimum wages also help reduce the unemployment levels in a country. The urge for an unemployed person to look for work when the payment is low is minimal. Most people will seek for jobs when they know that the pay is good and they can benefit from the job. According to economists the higher, the minimum wage the more likely citizens will seek for employment. This theory however fails to put into consideration the competitiveness and ability of the workers seeking employment. The more the employer pays a worker the higher the expectations from that worker. The theory can however be proved to work because countries with higher minimum wages have higher levels of employment.
Minimum wages help reduce the tax burden in an economy. In cases where most of the people are un-employed or earn little money, the government has to spend a lot of money trying to subsidize the cost of living for these people. The government spends a lot of money on subsidized food for these people paying their rent and providing them with free Medicare. However, with the minimum wages most of the citizens can take afford to take care of themselves. They can afford their basic needs and stabilize therefore the governments’ expenditure on such issues is reduced. the government can use its resources on other matters beneficial to the society at large.
Small businesses depend on the minimum wage laws to make their budgets. In order for these businesses to survive, the owner must put into consideration the minimum amount of money he can spend on workers so that he can make an informed decision when it comes to staffing. The business then can employ an appropriate number of staff to ensure that the business runs well and does not overspend on staffing.
Despite the fact that the minimum wages help a lot in the development of a country, it also has its demerits. First, it may lead to unemployment in a country. In cases where the minimum wage is high, the businesses there are likely to employ few people in order to reduce their spending and maximize the profits. The fact that these businesses have to spend the least amount of money on salaries in order to maximize their profits makes it necessary for them to employ less people since they have to meet the minimum wages. In countries where the minimum wages are low or do not exist the employers have the liberty of employing many people and therefore increasing the rate of employment in the country. The chart below shows the relationship between the minimum wages ant the number of employments made. The higher the amount of minimum wages the lower the number of people employed. (Waltman, J. L. 2008, 132).
Minimum wages can also cause cost-push inflation. The minimum wages means that the cost of production is high. Most companies and businesses have to spend a lot of money on the salaries of the employees raising the cost of production in the process. This extra cost is carried down to the consumer with the prices of commodities being raised. In cases where the minimum wages are low or non-existent, the companies spend little on the cost of production. The prices of the goods are therefore low. Minimum wages should be regulated so that it doesn't cause inflation.
Minimum wages also cause a lot of black market employment. Many employees will employ people secretly to avoid meeting the minimum wages rule. The employees have no option but to take the job since they have to make a living. These employees do not enjoy privileges like health insurance or retirement benefit. They have problems whenever they have these problems because they have no legal basis to report their employers. Some employers will employ their workers on the basis temporary basis to avoid the responsibilities that come with full employment. They end the employee’s contracts when they start complaining about low payments. In cases where the minimum wage does not apply, these employees are employees have access to permanent employment and enjoy many other benefits like insurance cover and retirement benefits. (Cunningham, W. V. 2007, 142).
Another disadvantage of the minimum wages is that the poorest people do not benefit. Most of the poor people have to rely on the benefits from the government. Most of these people do not have steady jobs therefore their income is not affected by the minimum wages laws. The levels of poverty have failed to reduce even after the inception of minimum wages act. This is because in most cases only one member of the family benefits from the minimum wages. The minimum wages is not enough to help these families get out of poverty.
Minimum wages is also very unfair to the employers. This is because despite the rise in the cost of production and the reduced profit rates of the company the employers still have to ensure that the payments of the workers remain constant. This makes it difficult for these businesses to survive in hard economic times. (Ghellab, Y. 1998, 45). They have to resolve to unfriendly measures like sacking many of the workers. This makes it difficult for both the employers and employees. In cases where the minimum wage is in effective, most the employers may reduce the wages of the employees in such times and save the jobs of these people.
The concept of minimum wages was introduced to protect the workers exploitation by their employers. The law is beneficial to ensure that everyone gets a fair amount of money according to the work he has done. The law has been beneficial to many workers who have had enough money for their sustenance. However, the law also has negative effects on the economy of a state. if not effected well the law can have many negative effects in the economy of a country. (Ghellab, Y. 1998 143). The minimum wages law should therefore be carefully structure with a reasonable amount as the minimum wage so as not to affect companies and businesses in order to effect the law.
References:
Cunningham, W. V. (2007). Minimum wages and social policy: lessons from developing countries. Washington, DC: World Bank.
Disadvantages of Minimum Wages - Economics Help. (n.d.). Economics Help - Helping to Simplify Economics. Retrieved December 4, 2012, from http://www.economicshelp.org/labour-markets/disadvantages-minimum-wages.html
Ghellab, Y. (1998). Minimum wages and youth unemployment. Geneva: ILO.
Media, D. (n.d.). The Advantages of Minimum Wage | Chron.com. Small Business - Chron.com. Retrieved December 4, 2012, from http://smallbusiness.chron.com/advantages-minimum-wage-2773.html
Social justice and growth: the role of the minimum wage. (2012). Geneva: International Labour Office.
Waltman, J. L. (2008). Minimum wage policy in Great Britain and the United States. New York, NY: Algora Publications
