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Minimum wage
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Minimum wage
Introduction
Minimum wage is the critical labor standard that is put by a federal government to ensure that their low paid worker gets a fair wage according to their perceptions. The minimum wage has given economists a space to try debate the impacts of this controversial law. Employers have to follow the federal minimum wage that has been imposed in their jurisdiction. Researchers have evaluated how the minimum wage affects the economy and the workers that benefit from the minimum wage. They have also shown how the minimum wage value has caused a declined within the states and has influenced the growth of income inequality. According to the recent studies, making more than their minimum wage to live comfortably has become a requirement.
The economists have always tried to measure where the minimum wage should be through different ways such as the change in price. Looking at the improvements and growth in the economy, the minimum wage should have considerably changed. There have been claims that many businesses may not afford to pay their employees high minimum wages and have therefore been forced to lay off workers, reduce hiring or close making it difficult for the low skilled workers that have no work experience to get their jobs (Miller et., al 2009). There have been arguments on effects of raising minimum wages as others say it improves the standard of living and while others it boosts their daily consumption while others argue that it impacts the companies hence hiring fewer employees hence reducing job opportunities.
A standard minimum wage will enable create more job opportunities and also grow the economy. The minimum wage should be efficient to support the needs of an average employee. Therefore, it is important to keep pace with rising wages and adjust the minimum wage to maintain constant median-to-minimum wage ratio.
Background information
The federal minimum wage was formed in 1938. It is taken as an inclusive of FLSA (Fair Labor Standards Act). This was to ensure that the workers would be justly rewarded to ensure that they meet their basic needs and have a quality standard of living. Over decades the lawmakers have it difficult for the low minimum wage workers through allowing the minimum wage to erode. Inflation has lowered the buying power of a minimum wage income. Despite the wage being increased, it has been increased by a small value that has been done only to adjust a small portion of the inflation.
A low purchasing power has caused the low wage employees to work longer as they try to get a better standard of living. Despite the fact that United States has a tremendous increase in labor productivity, that could support a significant quality of life, they still have a low minimum wage. The policymakers have failed to neglected basic labor standard whereby a person with a minimum wage cannot earn through full-time work and still remain below the poverty line. Raising the minimum wage will still insufficient because it’s a controversial issue. The productivity and technological advancement that countries have achieved for the last 50 years have not benefited all the workers. This, therefore, means that the policymakers have to enact the increase of minimum wages to not only a legislated increase but a bolder increase.
Since the Fair Minimum Wage Act in the year 2007, there have been many unsuccessful attempts to raise the wages further by the Congress. The public has also supported the opinion of raising wages to increase their living standards. Worldwide, most of the workers and consumers would like to bring an end the issues related to minimum wages through establishing a global minimum wage. The debate on minimum wages is not new, it has been in existence with numerous debates and global economic issues.
Global issues related to minimum wage
When minimum wage earners are unable to make enough to get by, it affects everyone that associates with them. This is a legal minimum that has been set for all workers which means that the workers have been guaranteed for a certain hourly pay that contributes to helping reduce the relative poverty. However, some issues or problems are associated with minimum wages which affect the firms and the workers. These include;
Unemployment
A minimum wage can cause unemployment when the labor markets are competitive. This is because the firms will have to demand or less labor and wages that are higher to encourage the workers to supply their labor for a competitive advantage (Noe et., al 2003). For instance, cleaning companies and hairdressers may proportionately increase their wage bill in such a situation. Minimum wage is also considered to impose cheap available labor hence lowering minimum wage jobs. Minimum wages that are high send away the low skilled worker with limited work experience. The young people have suffered a lot due to the limited work experience causing them to remain unemployed or receiving low minimum wages in the labor market. When an employer requires a person to complete a certain task at $3 in an hour they will not go and employ someone whose minimum wage is $9 in an hour. Therefore, it is clear that the minimum wage has included unemployment under minimum wage with a more effect than it would have been.
Inflation and black market
Minimum wage can also lead to inflation in the economy. This is because the changes in minimum wages lead to increased cost to the firms which are passed on to the consumers. It can also lead to people operating in the black market. Through this, the company can be involved in that to avoid legal minimum payment.
Welfare and work incentive
Minimum wages tend to affect the people and their willingness to work with a deduction of labor from unemployment benefit. When a person is given more unemployment benefit there is always a less incentive to work. A person works in the difference between relief and potential wages (Neumark et., al 2007). For instance, if the relief is $105 while the granted wage is $109 in a week. Therefore, the person is only required to work for $4 in a week. When working full-time hours at a minimum wage of 40-hours-per week a reduced net income, comparing this to a generous unemployment check and working zero hours, it is therefore rational to quit working.
Limited Anti-poverty benefits
Many of the people that benefit from the minimum wage earners have been considered to be second income earners. This, therefore, means that households are not in the poverty line of the minimum wage earners. However, an income earner that is slightly below the minimum wage is still considered to be poorer (Blanpain et., al 2014). This is because the limitation of the minimum wage will not increase the incomes of the low-income groups.
Increasing minimum wage
Raising minimum wage has been a controversial issue. It might cause the reduction in the job opportunities because business might not afford to hire employees that will not benefit the company in revenue generation. It has been criticized because it is considered to increase the cost of products and services. This, therefore, brings the opinion that the low wage worker would, at bets stay without increased minimum wages.
Reducing training opportunities
Minimum wages are considered to lower the income, low working skills into an artificial floor which has therefore removed the opportunities to acquire new skills and advancing in new jobs. Rather than increasing their income, the law has caused cutting off their bottom rungs for the employment ladder hence offering low skilled workers that now achieve moderate paying the jobs.
Proposed solution
Raising the minimum wage
The minimum wage for workers has been increased in the past in most populations. For instance, in Massachusetts, they received the biggest increase from$8 to $9 while California increased to$9 and Florida increased from$7.93 to $8.05. Other municipalities including San Francisco and Los Angeles are anticipating to hike up their wage floors to $15 in the coming years. Increase in the minimum wage should be good news for the workers who get low payments and cannot afford housing, education, and transportation in their nations. Increase in the minimum wage is related to welfare spending, employment and increased job creation (Neumark, 2007). The policymakers are also aiming at attracting and retaining industries that can produce the low and middle-class jobs as a means to ensure that the small wage workers can acquire employment to benefit from the increased minimum wage (Loyd, 2010). Turning the employees into owners can be a better way that the company can pay more without straining its resources. This has potentially enabled the workers to earn more than their minimum wages.
For other public companies, the workers have been involved in payment stock and guaranteeing to buy back the stock under certain conditions. For instance, assuming that the current wage per hour is raised from $7.25 to $13.25. Under this method, the employee is paid $7.25 in cash, and the rest is paid in stock. The employee will hold the stock throughout the financial year, and after the period they will sell back the shares to the company at the highest price that the stock has achieved during the last three months of that year. If the stock falls, the company guarantees the original value of the stock to the employee to ensure a safety net. While if the company performs better in its stock, it will net the employee more than $6 according to the time of awarding (Neumark, 2007). This, therefore, is a meaningful gain for the employees that are used to raise their wages beyond their minimum wages.
The Earned Income credit tax
The earned income tax is considered as an effective way to which poverty can be reduced for the low-wage workers (Vaughan, 2010). This is a refundable tax credit that is given to workers in moderate and low-income families. The share that the workers receive the credit is considerably high as compared to the minimum wage hike (Bennett, 2014). This increases only after the credit wage rates of moderate and low-income families’ increases depending on the number of family children. It shows that it increases the labor force, employment and participation of the working family members. The earned income tax certainly more effective and efficient in the provision of benefits and increased employment for the low-income families (Loyd, 2010). The credit tax can push a family out of poverty. This is because they raise the hourly wages of the workers.
Basic income
While raising the minimum wage does make sense, the people need to make more to survive than they can survive using the minimum wage. The smarter solution would be to give the individuals enough money to ensure that they live regardless of their status of work. This idea is known as the universal basic income that has had a large popularity in the last few years (Bennett, 2014). For instance, the Dutch city announced that they would begin a basic income experiment as did in Finland and Canada. The goal of this solution is to ensure that the citizen’s basic welfare falls under the government purview. Through the use of minimum wage in achievement has put pressure on the small businesses that have been forced to lay off its worker and at some point close. Through removing the work needs, basic income skirts through the problem by giving money to individuals up front (Jones, 2006). This has therefore freed people to pursue jobs that may not offer salaries that they may like, but it spares the employer from the burden of having a wage that may not be sustainable to them.
For centuries, people have been making money the same way. They have earned a living related to the skills they have offered to the society. Recent evidence is however overwhelming because automation is replacing the workers faster in such a way that the economy cannot handle (Blanpain et., al 2014). The consequences are that money cannot be made based on the services they offer to the society. This is because they won’t be useful anymore. Therefore, there has to be another way of generating and distributing income.
The basic income has therefore poised to ease the distribution of income. This form of income distribution is whereby people earn a monthly allowance that they use to cover their own basic needs such as the food, shelter, and clothing, whether they are working or not (Vaughan, 2010). The idea has spread for the last few years with most countries are beginning to use the program. As the nature of work begins to change, disruption will ultimately affect the lives of the people. But if a nation guarantees the basic income floor for everyone, this will help control the situation of the people not to fall into desolate poverty. The basic income covers all groups which include the displaced and the employed. It is also important to note that productivity will tend to rise due to the basic income provided to the people (Saget, 2008). The basic income is a more effective solution because it offers workers with the reassurance that they will be able to put up their basic needs hence having a peace of mind that their payroll does not cripple them.
Statistical data
Adjusted due to inflation, the federal minimum wage peaked back in the year 1968 with $8.68 (in 2016 dollars). After being raised to the current minimum wage $7.25 per hour, it has lost approximately 9.6% due to inflation (Vaughan, 2010). Economists have estimated that the United States had been expected to be paying a minimum wage of $12 an hour. This is according to how rich it is and its pattern of advanced economies in economic development and cooperation. It is also evident than 45% of the 2.6 million hourly workers that were estimated to be below or at the minimum wage was at the age between 16-24 years. In addition to that, 23.3% aged between 25-34 years. This 2.6 million is 2% of all the salary and wage workers. This, therefore, indicates the effect of inflation and purchasing power to the minimum wage of workers.
The food and service industry is one of the biggest that has most near minimum wage employees. Report shows that 3.75 million of the individuals that are near the minimum wage, 18% of the total work in food service and restaurant industry. Among them are employees aged 30 and below. About a quarter of the near minimum wage employees are in their 20’s and 30’s work in that industry. However, most of the workers in that industry are tipped hence increasing their gross to $9.98 an hour. The industry has 20% of its sales being of higher cost as compared to other industries. This indicates that the minimum wage is mostly for the young people but not the households hence cannot cause poverty to the workers but can increase the price level of the products and services.
In 2017, EU member states (Austria, Cyprus, Italy, Sweden, and Finland being exceptions) made their national minimum wage (Saget, 2008). Compared to the 2008 minimum wages, the 2017 reports show that they were higher in every EU member except for Greece where they were low by 14%. In that gap, the minimum wages in Bulgaria doubled and increased by 109% with the rate of changes being higher in Romania by 132%. According to the data collected, the gap between the level of minimum wages between the countries was considerably one price level differences when applying the purchasing power parities. This, therefore, is an evidence of the effectiveness of income credit tax which has raised the individuals above the poverty line in most of the EU members.
Strengths and weaknesses
The data has been collected regarding the specific problem which is minimum wage through a procedure that fits the problem best. This has made it easy to analyze and address specific issues that are related to their situation. The data has been collected in such a way that timely measures can be easily instituted. It is more of objective rather than subjective because it has been gathered from the field. It has no unbiased information hence easy to measure validity and reliability. The data is confined into federal and state data sources with a vast of information and findings gathered. However, the data is not interpreted into detailed findings of the results.
Limitations
Non-probability sampling that prevented the research from making the generalization of the population being studied from the data collected. This was due to limited data sources for evaluating minimum wage statistics.
Ethical outcomes
Positive ethical outcome
The earned income credit tax is much more effective and targeted policy that aims at helping the low-income families because it enables raise only the earnings for moderate and low-income families. Thus, they receive many benefits making it more beneficial for the poor households. It increases their labor participation and employment. This, therefore, is an effective way to reduce poverty hence expanding the tax credits can make a big difference in people’s lives and return some of them beyond the minimum wage.
Negative ethical outcomes
For instance, Chipotle, the burrito chain, has raised its prices to almost 14% which has corresponded to the minimum wage increase that went on in San Francisco. Their workers have received the hike in salary, but the burden of increased wage has reflected back to their customer. This has made the workers not to view the value of their wage increase due to the increased price of products due to minimum wage increase. The number of employees in the competitive market will lower due to the increased wages hence causing unemployment. The low skilled and limited experienced workers are likely to lose their jobs as the companies try to lay off their workers due to increased minimum wage. The increase in minimum wage is not an effective way of reducing poverty (Bhorat, 2014). This is because most of the households within the minimum wage line hence it is not related to decreasing in poverty rates. It is not also related to poverty because most people living in poverty do not work.
Conclusion
It is important to keep pace with increasing overall wages through maintaining the minimum-median-wage ratio. Minimum wage ratio has been a global issue due to its effect on the standards of living. Many problems are associated with the minimum wage in the society. These include unemployment, reduced training opportunities, increasing wages, inflation, black market, welfare and work incentives and limited anti-poverty benefits. These, however, can be solved through alternative solutions such as income tax credit, basic income and at some point increasing the minimum wage. These will effectively sole the minimum wage problems and offer best policy solutions. This is paper has, therefore, analyzed the minimum wage and its global issues and how they can best be solved with statistical analysis that has offered information for different populations. This has therefore helped in having the best way to solve minimum wage global issues.
References
Noe, R. A., Hollenbeck, J. R., Gerhart, B., & Wright, P. M. (2003). Gaining a competitive advantage. Irwin: McGraw-Hill.
Saget, C. (2008). Fixing minimum wage levels in developing countries: Common failures and remedies. International Labour Review, 147(1), 25-42.
Miller, D., & Williams, P. (2009). What price a living wage? Implementation issues in the quest for decent wages in the global apparel sector. Global Social Policy, 9(1), 99-125.
Vaughan-Whitehead, D. (2010). The minimum wage revisited in the enlarged EU. Edward Elgar Publishing.
Neumark, D., & Wascher, W. L. (2007). Minimum wages and employment. Foundations and Trends® in Microeconomics, 3(1–2), 1-182.
Jones, R. (2006). The apparel industry. Wiley-Blackwell.
Blanpain, R., & Bisom-Rapp, S. (2014). Global Workplace: International and Comparative Employment Law Cases and Materials. Wolters Kluwer Law & Business.
Bhorat, H. (2014). Compliance with minimum wage laws in developing countries. IZA World of Labor.
Bennett, F. (2014). The ‘living wage’, low pay and in work poverty: Rethinking the relationships. Critical Social Policy, 34(1), 46-65.
Lloyd, C., & Mayhew, K. (2010). Skill: the solution to low wage work? Industrial Relations Journal, 41(5), 429-445.
