Effects of Minimum Wage

This report by Zavodny (730) uses state-level and individual-level statistics to examine the impact of minimum wage rises in the United States on the amount of hours working. According to statistics collected at the state level, a raise in minimum wages results in a lower rate of jobs but has little effect on the hours of work for teenagers. The results also shows that there is no significant impact of an increase in minimum wage on the hours worked by teens employed in low-wage sector who are subject to the impacts of a change in the amount of minimum wages. It also found that the minimum wages among the teens does not occur when a comparison is made between the low-wage teens after the increase of the minimum wages and the low-wage teens before the increase.

Introduction

The relationship between an increase in the minimum wages on employment has gained much interest following the emergence of studies which argue that that there is little impact of an increase in minimum wages on employment. Previously conducted studies have concluded that when there is a 10% increase in wages, there is a corresponding reduction in employment by 1% to 3%. It has been suggested that the recent studies which claim that an increase in wages does not have an impact on employment reduction were erroneous due to poor data collection procedures, the use of problematic techniques of information collection, and the likelihood of monopsony power. However, there is a possibility that employers can reduce the number of hours of employees in workplaces rather than implementing a wage increase. Employers are motivated by a number of factors in increasing the minimum wages of employees. This can occur in case of a resolution to increase wages in a short run. Reduction of wages has been identified as an alternative to firing of workers. Some workers who have benefited from a higher wage increase can opt to work for fewer hours since they are likely to get higher benefits for the hours worked. Despite the existence of a number of studies examining the impacts of increase in the minimum wages on employment, few studies have been conducted that focuses on organizations in the US. Some companies have responded to an increase in minimum wages by formulating policies that abolish part-time employment and recommends full-time employment as a technique of achieving the objective of retaining workers who may opt to work on part-time basis. This study involves the examination of panel data on individuals to determine whether there is a change in the hours worked by teens in the United States when changes are made in minimum wages in such a manner that they earn higher hourly wages. It is found that there is a small negative impact on employment but it has no effect on the number of hours worked by employees. There is the tendency of teens to be disemployed when they are allowed to benefit from minimum wages, indicating that it has no impact the number of hours worked among teens who were previously in employment.

Main Argument

The main argument that this paper presents is that an increase in the minimum wages results into a reduction in employment and the number of hours worked at both individual and state levels. The impact of minimum wages on employment and hours worked at the individual and state levels can be understood by the use of a theoretical effect analysis. In this analysis, according to the traditional perception, an increase in the minimum wages results into a high cost of labor which is associated with low demand and a high supply due to the willingness of workers to work. This results into a total fall in employment because employers end to lay off workers in order to reduce the cost of paying higher wages. In theory, employers will tend to reduce the number of skilled workers in preference for those who are unskilled because the skilled workers are more likely to demand higher wages. Highly skilled workers are more likely to work more hours compared with lower-skilled workers because of their long duration of stay in an organization and the fact that they have completed their educational activities. The position in the wage distribution is another factor that may affect the amount of minimum wages received by employees. If there is a higher productivity in the position of an employee, such an employee may bargain for better wages in order to remain in employment.

Data that Can be used to Understand the Topic

According to the article, the most relevant data that enables understanding of the topic of the impact of implementation of minimum wage policies on employment is the state-level or firm-level data. These data provide information about people who are more likely to be affected by minimum wage policies such as teens, retail traders, and employees in fast-food restaurants. The use of state-level and individual level data is associated with a number of advantages such as the effect of minimum wages when transition occurs from unemployed status of employees to employed status and when employees transition from non-employment to employment status. Individual-level data provide information regarding the probability of the minimum wage increases on the likelihood of remaining in employment among those who are unemployed. The article makes observation of increases in the federal and state minimum wages between 1990 and 1991 which rose from $3.80 to $4.25 in 1991. This variation is examined in the state-level regressions in testing the probability that rates of employment and the number of hours worked by teens reduces as the minimum wages increases. The article also illustrates that the impact of new wage ceiling at the individual level can be understood by performing a regression analysis which examines the probability of remaining employed after a new minimum wage has been set. There is a variation of this paper from previously conducted studies in a number of ways since its analysis also incorporates the number of hours worked as a measure of the impact of the minimum wages on employment. It also includes information for years when the minimum wages were constant.

Estimates at the Individual level

When an analysis is conducted at the state level, it results into the finding that an increase in minimum wage by 10% results into a decrease in employment rate by 1.2% but the effect is only significant at 10% confidence level. This is due to the fact that companies experience difficulties in paying employees when there is _x0091_wage gap_x0092_ between the previous wages and the current wages in which the latter is higher than the former. Employees who have been assigned a minimum wages are more likely to experience unemployment or a reduction in the number of hours worked. However, the study reveals that a minimum wage does not have a significant impact on lowering the hours of work of employees. This is attributed to the perception that the hours of work may fall within other groups other than the teens. There is a likelihood that employers may seek the services of low-skilled teens in preference to high skilled teens when implementing a minimum wage policy so that there is no net change in hours worked. There may be substitutes for teens when their roles are assigned to young adult women who have relatively lower educational qualifications. Previously conducted study examining the impact of lowering minimum wage on the hours of work when the participants are adults resulted into the finding that it resulted into little impact on the number of hours worked. Despite the unlikelihood that employers may substitute teen employees with adult employees when minimum wage limit is set, they may decide to substitute some teens depending on their levels of skills. Low skill teens may experience reduced hours when low minimum wage is set because teens with high skills will seek employment in the organizations, thus taking the positions of the former. When wages are low, most teens are less likely to remain employed compared with their counterparts who earn higher wages. There is a reduction in the likelihood of being employed by 2.2% when there is a rise in minimum wages. If the study uses real variables in the estimation of the impact on a worker when there is a minimum wage, the outcomes are similar to the theoretical points of view are used to study the impacts of minimum wage on the likelihood to remain in employment. Low-wage employees who remain in the organizations in which they work experience an increase in the number of hours of working in a similar manner as high-wage workers irrespective of a rise in the nominal minimum wage. The inclusion of workers who do not remain employed results into the experience of an increase in hours worked irrespective of whether there is a rise in the minimum wage. When non-employed workers are included, there is a continued experience of an increase in hours in relation to high-wage workers.

Conclusion

This research paper examined the impact of minimum wage on the chances of remaining in employment among teens. It was found that teens_x0092_ likelihood of remaining in employment was affected by the minimum wage in which the increase resulted into a decrease in employment. It was also found that an increase in the amount of minimum wages results into a decrease in the number of hours worked. The reason why an increase in minimum wages results into a decrease in employment is because employers are not able to meet the high cost of paying the employees. It also results into a decrease in demand for labor and a high supply. A high supply of labor due to an increase in minimum wages is caused by the increase in the number of teens who seek employment in organizations where the policy has been implemented. The study was contrary to traditional perception which is based on the assumption that an increase in minimum wages has no impact on reduction in employment. It has been suggested that the traditional perception may be caused by the likelihood of flaws in the traditional models which makes them untrue, or the possibility that employers can change the hours rather than employment statuses of employees which leads to the perception that there is no reduction in employment. There is also the likelihood that many unskilled adults were recruited to fill the positions of teens and prevent the likelihood of a deficit in the number of employees in an organization.

The results show that there is no significant impact of an increase in the minimum wage on teen hours but it has a small impact on employment. At the state-level outcomes, there is no significant negative relationship between wages and the average hours of work among both employed and non-employed teens. The outcomes show that teens who are more likely to be affected by an increase in the minimum wages are not likely to work for few hours compared with other teens, even when the unemployed teens are included in the study. State-level results show that a higher minimum wage has an impact on lower teen employment but it is sensitive to the variable selected to represent a minimum wage. When there is an increase in minimum wage at the individual level, there is a corresponding reduction in employment by of teens by 2.2%. In conclusion, this study resulted into the finding that minimum wages results into a decrease in employment rates, and a possible adverse employment effects which have an impact on the lifestyles of the population. It is recommended that studies should be conducted which determine the solutions to unemployment when minimum wage is set by the government.

Works Cited

Zavodny, Madeline. “The effect of the minimum wage on employment and hours.” Labour Economics 7.6 (2000): 729-750, [Online], available at: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.468.9369&rep=rep1&type=pdf , Accessed on October 28, 2017.