Implications of Raising the Minimum Wage
Introduction
Most states in the United States have already passed laws that aimed at raising the minimum wages for employees. In the 24th of July 2014, the Fair Labor Standards Act (FLSA) ratified the $7.25 federal minimum wage for employees from both public and private companies (United States Department of Labor). Though this news may seem positive to employees, debates on whether wage hikes are necessary and really helpful to both employees and employer.
A very few studies have examined the relation between the Law of Supply and Demand on the wage rates of employees. However, all of these studies have shown how important it is to analyze the demands and supplies for services and products in determining whether or not an increase in the minimum wage is necessary. One tool that can be used in analyzing the effects of changes in supply and demand in an employee’s wage, is the Labor Demand Curve. The Labor Demand Curve shows that as the demand for services or products increases, the probability of companies imposing an increase in wage become higher. Education also plays a vital role in determining wages. Applicants who possess better educational backgrounds are more in demand than those who are low-skilled. For instance, people nowadays are so much willing to spend so much on preserving memories in special occasions such as weddings. This, then causes an increase in the demand for photographers and videographers. However, due to the costly trainings and equipment, the supply of photographers is relatively low. However, when the supply for a certain service or product increases too much, and develops worker surplus, firms tend to give lower wages to employees who are seeking jobs (Lee,1998).
Wage Hike and Consumer Purchasing
Increasing the minimum wage would mean that people would have more resources to spend and buy their needs (Obama, 2013). However, this is just the other side of the coin. When companies increase their employee’s minimum wage, this would be an increase in the production cost of companies. This usually causes a relative increase in the cost of the produce, which will be shouldered by the consumers (Lee, Schluter, & O’Roark, 2000).
Impact on Human Capital
Increase in the minimum wage will definitely have an impact to low-skilled workers. Because of the advancements of technology nowadays, and with everything starting to be operated by machines, an increase in the minimum wage will surely give companies an option to replace low-skilled workers with machines for production.
Impact on Government Spending and Unemployment
The government have implemented an increase in the minimum wage of employees in order to lift people out of poverty. Though this is a good intention by the government, studies show that increases in the minimum wage of employees tend to reflect negative effects, especially on the social welfare programs of the government. People who benefit from the age increase tend to have less participation in the programs of the government such as the Food Stamp Program (Sabia & Nguyen, 2014).
Also, one of the critiques to the increase in the federal minimum wage is its tendency to promote unemployment. Because companies often avoid additional production costs, rather than increasing the minimum wage, they would rather lay off employees instead (Worstall, 2015).
Conclusion [Include Governments Responsibility]
References
Lee, C., Schluter, G., & O'Roark, B. (2000). Minimum Wage and Food Prices: An Analysis of Price Pass-through Effect. Elsevier. Retrieved May 2, 2016, from https://www.ifama.org/files/111-128.pdf.
Lee, D. R. (1998, December 1). Price Floors, Surpluses, and the Minimum Wage. Retrieved May 2, 2016, from Lee, C., Schluter, G., & O'Roark, B. (2000). Minimum Wage and Food Prices: An Analysis of Price Pass-through Effect. Elsevier. Retrieved May 2, 2016, from https://www.ifama.org/files/111-128.pdf.
Sabia, J. J., & Nguyen, T. T. (2014). Minimum Wages and Public Assistance: Do Higher Minimum Wages Reduce Government Spending? [Abstract]. Retrieved May 2, 2016, from http://paa2015.princeton.edu/uploads/153625
United States Department of Labor. Compliance Assistance - Wages and the Fair Labor Standards Act (FLSA) Overview. (n.d.). Retrieved May 2, 2016, from https://www.dol.gov/whd/flsa/
The Wall Street Journal. (2013). Obama: “Raise Minimum Wage to $9 an Hour”- SOTU 2013. [Video File]. Retrieved May 2, 2016, from https://www.youtube.com/watch?v=fhho01eL4C8
Truth in Excile. (2011). How the Minimum Wage Creates Unemployment. [Video file]. Retreived May 2, 2016, from https://www.youtube.com/watch?v=AbuJYhX3prc
Worstall, T. (2015, July 14). News Just In: Higher Minimum Wage Leads To Price Rises And Job Losses. Forbes. Retrieved May 2, 2016, from http://www.forbes.com/sites/timworstall/2015/07/14/news-just-in-higher-minimum- wage-leads-to-price-rises-and-job-losses/#79e517372a4e
