Should Minimum Wage be raised?
Minimum wage refers to the lowest pay that is allowed by the legal authority to be given to the employed people (US Department of labor, 2010). It is the minimum compensation that an employed person receives after performing a certain job. Since minimum wage is set by the legal authority, it is illegal to pay an employee less than what is stated as the minimum wage in the country. In this connection, the minimum wage protects employees against exploitation from the employers. The minimum wages in various nations have faced a hot debate. This debate is based on three objectives; efficiency and equity and voice. Though the debate is supported on the basis of equity, it is refuted on the basis of efficiency (US Department of labor, 2010). Raising the minimum wage will have various economic implications on inflation, equity, job creation and competitiveness. This paper will therefore discuss the economic implications of raising the minimum wage.
One economic implication of increasing the minimum wage is equity. Increase in the minimum wage will help to ensure that employees are protected against employer exploitation and this will allow them to be in a position to cater for their basic needs (US Department of labor, 2010). In addition, the poor who earn the minimum wages will progress towards equity with the rich people in the society and this shows that increasing the minimum wage will have an economic advantage in the society. It will also enable the poor people to shift above the poverty line thus improving their standards of living. In this connection, increasing the minimum wage is supported on the basis of ensuring equity among people in the society. However, increase in minimum wage might not be able to shift the lives of many low wage earners from poverty due to increase in prices of goods and services. This proves that minimum wage does not need to be raised because it may bring more harm than benefit (US Department of labor, 2010).
The other economic implication of raising minimum wage is that it will cause increased inflation rate in the economy. In most cases, a rise in inflation can be directly linked to rise in the minimum wage (Paul, 2004). In this connection, a rise in minimum wage should be matched to the current inflation rate in order to know how the minimum wage should be increased. In addition, increase in minimum wage implies an increase in spending power and this implies that a rise in inflation will render the poor people unable to purchase many products. This is because, when an increase in minimum wage does not match with the inflation rate, the people earning the minimum wages will not be able to buy goods and services which have inflated prices and this will affect their purchasing power. This confirms that increasing the minimum wage implies an increase in inflation rate because inflation can be caused by increase in people’s income (Paul, 2004). As a result, there is no need to increase the minimum wage because it will cause increased inflation which will make the poor to remain poor in the society. When companies increase the minimum wages for their employees, they in most cases pass the cost of increased labor to the employees through increased prices of the products. This shows that minimum wage should not be increased because it will not make any difference in the employees’ lives (Paul, 2004).
Job creation is the other economic implication of increasing the minimum wage for the employees. When companies raise the minimum wage, they find it hard to support many workers and this may lead to the laying off of some of the employees thus causing joblessness (Margaret, 2008). This implies that increasing the minimum wage will affect job creation and this may affect the company’s economy. It is better to increase the number of hours that the minimum wage earners can work rather than increasing their wages and resulting to joblessness to most of them. Working for the minimum wage can act as spring board to highly paying jobs and this explains why the minimum workers should continue holding their jobs rather than losing them due to increased wages. It also helps people to gain essential skills that will enable them to get into well-paying jobs. Finding a minimum wage earning job can help people to end their poverty and thus minimum wages should not be raised in order to encourage employers to provide jobs which will enhance job creation in the society leading to an improved economy (Margaret, 2008).
Finally, increasing the minimum wage has an economic implication because it will result to competitiveness. When companies increase their employee wages, they will have to ensure competitiveness in their production in order to cater for the increased cost of labor (Margaret, 2008). Competitiveness allows companies to provide goods which will move faster in the market and bring more profits which will help to cater for the increased cost of labor. However, this increase may result to lack of competitiveness because most companies may lay off employees who have the necessary skills thus reducing their competitiveness. This explains that minimum wages should not be increased because they will bring negative effect to a country’s economy.
References:
Margaret O. (2008). Increasing the minimum wage: California winners & losers. California.
Public policy institute of California
Paul K. (2004). The economic effects of the minimum wage. The Heritage Foundation, 2004
US. Department of labor. (2010). Making work pay. The Case for raising the minimum wage.
Office of the Chief Economists
