The minimum wage has been introduced in a lot of countries all over the world for long time including United States. In the nutshell minimum wage is the legal minimum hourly wage paid to employees by employers. Also, the question involving how minimum wage impacts employment remains among the most generally studied as well as the most debated topic in labor and employment economics. There is a popular belief that raising the minimum wage will reduce poverty. In this essay, I will provide you with the facts and arguments for the truthness of this statement.
For the past several decades, the minimum wage has been a debated subject among policymakers, general public and economists in the United States and around the world. In the United States it goes way back during the great depression of 1930’s, when the stock market crash and bank loan were failing. Families and individuals needed income to support their families. Even before its beginning as a minimum wage movement of the 1938 Fair Labor Standards Act (1938), the minimum wage was a politically and economically belligerent issue, with early efforts by the United States America to establish minimum wage floor declared unconstitutional by the United States Supreme Court and US government first try to legislate a federal minimum wage in 1933 and struck down. Ultimately, though, the introduction of minimum wage succeeded, and Congress passed the FLSA (1938), setting the minimum wage at .25 dollar per hour.
From economists prospective, the minimum wage represented a means of challenging alternate theories of the labor market and employment. To economists, a wage is a labor and employment market result. As such, economists sidestep from making value judgments regarding the “fairness” of a wage. Rather, in evaluating minimum wage policy, they measure the economic costs and benefits of the policy and estimate how effectively it attains its proposed goals. As with any policy discussion, there are two sides to this story, and economists are divided on the issue. Employers that depend on to a extensively on low or unskilled labor generally experience dramatic increases in wage expenses because of a minimum wage, since a minimum wage eliminates employers and companies’ that employ low skilled employee ability to negotiate wages for their low or unskilled experience they bring to the table. Many employers see the minimum wage as a biggest expense for an unskilled or least skilled workers, which can cause them to enforce stricter decision criteria for hiring or cut back on hiring altogether. Minimum wage jobs are often suited for young and inexperienced job seekers entering the workforce for the first time, but, according to the Employment Policy Institute, every 10 percent increase in the minimum wage causes a 5 to 9 percent decrease in unskilled labor employment. This can cause a condition where individuals with little or no experience who might happily accept a lower wage find themselves unable to find a job. If this trend continues in specific regions, local unemployment could rise.
On the other hand, from employees prospective specifically low skilled or unskilled employees, they experience direct benefits from increased minimum wage, but there are associated disadvantages to consider as well. The noticeable benefit to unskilled workers is the guaranteed increase in mandatory income provided by a guaranteed wage payment. At the same time highly skilled and qualified workers experience a increase in income as well, since an increase in the lowest wage pushes all other wages uphill as well. As far as employment rate, in my opinion as economics student I do believe that it would affect small business tremendously. A small business is mostly run by one or a few employees and they may not have the capitals to pay several unskilled or low skilled employees price floor minimum wage to be competitive and to stay in the market.
Economists who clash with such policies claim that increasing the minimum wage does significantly reduce low-skilled jobs. For example, a recent study by the Congressional Budget Office (CBO) estimated that raising the minimum wage to $10.10 would reduce total employment by 500,000 workers. Economists also warn of unintentional costs of the policy that may unreasonably affect those whom the policy was meant to assist. For example, since the policy reduces the number of jobs available to low-skilled workers, it restricts access to entry-level positions that the youngest and unskilled labor work force need to gain valuable skills and work experience. In addition, too often the working poor don’t benefit from the increased minimum wage, rather, the working poor sustain uneven share of the and employment jobs lost. Economic advocates suggest increasing the minimum wage to help alleviate poverty among the working poor people in the society. However, it would be a mistake to compare minimum wage workers with the working poor. Also, for increasing the minimum wage do not consider for the presence of competitive low skilled labor markets in which corporations will reply due to increased wages by either cutting jobs or reducing work hours for low skilled or unskilled workers in their company.
A mathematically orientated paper by Gary S. Fields and Ravi Kanbur of Cornell University describes how differences in the minimum wage affect the amount of employment and poverty. The contents of which show how the relationship between poverty, employment and a change in minimum wages depends on four factors: the degree of poverty aversion, the elasticity of labor demand, the ratio of the minimum wage to the poverty line, and the extent of income¬ sharing. The results of their paper are dependent on these factors and thus poverty can either increase, decrease or remain the same when the minimum wage increases.
In conclusion, the introduction or an increase of the Minimum wage has two important purposes. The first is to boost the incomes of low-wage workers often the youngest and least skilled workers. It was reduction of poverty tool to protect the lower paid unskilled workers. The second intention of the minimum wage is to maintain a price floor for least paid labor market. This role of the minimum is significant, because low-wage workers have historically had the least negotiating and bargaining power when it comes to wage negotiation for the job. In other word the minimum wage was introduced to avoid that employers had too much market power and therefore had the possibility to lower wages artificially. So, the bottom line was to protect young and unskilled people and low wage employees from being exploited. Low-wage jobs provide a key opportunity for inexperienced workers to develop valuable skills and work experience, a critical step on the ladder of success whatever career they choose. However, the income earned is not likely to be enough to support a family.
Certainly the fact that introducing or increasing a minimum wage always has a negative impact on youth and unskilled employment. When setting price floor or the minimum wage at an appropriate level for the country and combining it with the other policies the government has the higher possibility to alleviate poverty and unemployment and give incentives to work for young and unskilled workers without affecting the youth and unskilled employment in a strong negative way.