Shoud minimum wage be increased?

Many economic forums have been clouded by disputes about whether to lift or lower the minimum wage. In the United States, the minimum wage was first introduced during the Great Depression in 1938, during President Roosevelt’s presidency. This is the lowest possible wage floor where a worker should be paid. It was originally set at “$0.25 per hour, and the Congress has raised it 22 times since then” (Pernica 5). The most recent reforms came in 2009 when it was passed that it could be $7.25 per hour, an improvement over the previous average of $6.55 per hour. Propositions have been made that the current salary floor should be improved to $10.10 per hour. The proponents for this idea argue that the current rate is meager to sustain people and raise their standards of living (Kukathas 12). Moreover, some studies indicate that the low minimum wage promotes the current income inequality gap experienced in the US. However, opponents heavily refute these arguments. Indeed, raising the minimum wage will only create instabilities in the economy and thus slow its economic growth. Henceforth, a policy to increase this wage will be damaging in a wide spectrum of life. Business people, young people, and low-skilled workers will have been negatively affected by the policy (Pernica 9). Furthermore, raising the minimum wage has a petite impact in eradicating poverty. As such, a policy to increase minimum wage should not be welcomed as this will prove to be harmful. It will place a huge burden on employees, slow the rate of economic growth as well as decrease the level of employment.

Reasons Why Minimum Wage Should Not Be Increased

A raise of the minimum wage will force the employees to lay off workers and, thus, raise the rate of unemployment. Liu, Hyclak, and Regmi state that “increasing the minimum wage to $10.10 per hour from the current value of $7.25” will culminate into a loss of around 500,000 jobs (Liu, Hyclak, and Regmi 19). In addition, in another survey carried out by Fruits involving 1213 businesses including human resource professionals, he indicates that 38% of employees who pay workers with the current salary of $7.25 per hour said that they would lay off some of its workers when it is increased to $10.10 per hour (Fruits 9). Fruits’s survey further elucidates that 54% of these employees ascertained that they would decrease their hiring levels. Economic analysis also demonstration that if this wage is raised to $15 per hour, the employment level will reduce, and greater impact will be seen in the private sector (Gregory 5).

Undisputedly, the minimum wage should remain at its current level because its increase will only worsen poverty level in the nation. Studies show that the low-income earners do not benefit from a move to increase the floor salary (Meer and West 10). Meer and West explain that the number of working hours along with the employees are expected to decline when the wage per hour is raised. Employees will employ this tactic as a way of reducing the production costs and maintaining their profit margins. According to Meer and West, the combined effect resulting from these changes only increase the poverty level (Meer and West 21). Again, Pacheco explicates that high wage increases the cost of production and thus makes the prices of products to increase. When this happens, the demand for goods and services decreases and hence producers opt to reduce the number of workers in an attempt to decrease the cost of production (Pacheco 9). Pacheco states that “the net effect of higher minimum wages would be unfavorable for disadvantaged households. They also lose jobs, and their net losses would be greater” (Pacheco 11). In respect to this, the poverty level increases and the and, therefore, affects the economy negatively.

Another damaging impact will be evidenced by an increase in the price of the consumer goods due to increasing the minimum wage. Henceforth, the efforts to address this issue has to center on retaining the current wage floor level. Evidently, many producers typically pass the majority of the wage increase to the consumers. For example, a survey done in fast food restaurants indicates that the management is likely to pass 100% of the labor increase to consumers. This will translate to an increase in the prices of foods. For example, in Oakland, California, the price of a coffee cup increased by 20% after the state increased the minimum wage by 36% to $12.25 per hour (Pernica 18). This attests to the contention that the standard of living will be high and the consumers will be unable to afford some of the essential products. In fact, increase in consumer goods triggers inflation which a detrimental facet to the economy. Undoubtedly, inflation leads to high cost of living and this will affect the low-income earners. Life becomes expensive, and for this reason, many people strain to earn a living. Negative impacts are also seen to business. An increase will also hurt businesses and hence force some of the companies to close down. Here, small businesses are more likely to be victims compared to the large businesses. Viet reports that “60% of the small business owners say that raising the minimum wage will hurt them” and impact on their business operations (Viet 3). Furthermore, young adults, particularly teenagers, will be shut out of the workforce as these workers fail to have work experience (Liu, Hyclak, and Regmi 37).

People who advocate for minimum wage increase argue that the raise is key to promoting the economic activities which are responsible for spurring job creation. Therefore, this proves to be a vital factor in improving the economic growth. For example, Kukathas mentions that increase of the least salary from $7.25 to $10.10 per hour will enable the earnings of about 27.8 million individuals to increase. Kukathas’ point of view highlights that the present low poverty level will be improved and as a result, the standard of living will be upgraded. However, this argument can be vehemently refuted as it has been explained that poverty level will increase due to increase in the rate of unemployment. In addition, even though proponents for increasing minimum wage state that there will be a reduction in the income inequality, a question remains focusing on how many employers will be willing to retain their employees as a result of this policy. Certainly, there will be unemployment which will only make this gap to increase and lead to poor standards of living. Henceforth, refuting Kukathas propositions is heavily grounded on the solid arguments which only portray how the economy will be adversely affected.

Additionally, the minimum wage should not be raised as it will prove to be detrimental to the low-skilled workers. This move will only result in reduced average earnings for the low-skilled workers, and others will lose their jobs due to reductions in the employment level. Viet reports that if it goes up by 10% it will culminate into “a 1 to 3 percent decrease in employment of low-skilled workers in the short term” (Viet Cuong 5). He goes further to state that in the long run, the impact is profound as the decrease in job opportunities will be large. Alluding to this is that, workers whose skills correspond to the rate of $7.25 per hour will now face completion from the educated people who are more skilled when raised. Henceforth, they will lose their jobs to the skilled people as employers will view them to be unproductive. More interestingly, the likelihood of upward mobility for the low-skilled workers will be limited. Many employers will develop fears in promoting some workers because their salary bracket has increased. Fundamentally, this will cause rigidities in the labor market and hence make it more problematic for individuals climb up the economic ladder.

Companies are likely to turn to the usage automated processes along with robots in effort to replace manpower if the floor wage increase. This is a solid reason why the minimum wage should not be raised because the resulting factor will also be unemployment. When companies become unable to afford a payment of higher minimum wage and particularly to the low-skilled, they will try to avoid hiring of people and use automation processes. Evidently, robots perform many activities that are simple such as lawn mowing, mopping, and vacuuming as well as gutter cleaning in organizations. Again, commercial service robots can also manage to do more complex activities in health care, food preparation, and commercial cleaning. In view of this, the poorest areas in the nation will be crucially affected. The poor areas are characterized by inequality in income distribution, and this is likely to worsen with the minimum wage is increased. Many people will end up unemployed and hence raise the inequality gap. Unemployment will make life to become more expensive, and the housing costs are likely increase. For example, the cities such as Los Angeles which are featured with limited housing supply, a rise of the wage level will escalate the make rental prices. Landlords will view that workers have more money and hence increase their rental prices. Moreover, companies will be encouraged to outsource jobs to other nations where costs are lower hence creating unemployment. Pernica mentions that a total of 2,382,000 US jobs were outsourced in 2015 (Pernica 18). Producers attempt to reduce and control their costs as they view the current wage to be high. This only means a further increase will move the production outside the US if it is raised to 10.10 per hour.

Conclusion

It is evident that a rise in the wage floor will only be harmful to the nation and hurt the economy both in the short run and in the long run. It will lead to a reduction in the job opportunities, and the low-skilled works will be the most affected. Moreover, the poverty level will go up due to increase in the rate of unemployment. There is no doubt that producers will try to seek ways of increasing their profit margins by decreasing the production costs through laying off some of its workers. One of the most troubling aspects is that the consumer prices will increase and cause inflation in the economy. This will also result in a ripple effect and increase the interest rates. Again, wide studies stipulate that higher wage will attract more experienced employees and hence block the young people from getting into the entry-level jobs.

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Works Cited

Fruits, Eric. “The Impact of Minimum Wage Indexing: Employment and Wage Evidence from Oregon and Washington.” SSRN Electronic Journal, 2009. doi:10.2139/ssrn.1461764.

Gregory, Terry. ”When the Minimum Wage Bites Back: Quantile Treatment Effects of a Sectoral Minimum Wage in Germany.” SSRN Electronic Journal, 2014. doi:10.2139/ssrn.2567167.

Kukathas, Uma. The Minimum Wage. Greenhaven Press, 2010.

Liu, Shanshan, Hyclak, Thomas J., and Regmi, Krishna. ”Impact of the Minimum Wage on Youth Labor Markets.” LABOUR, vol. 30, no. 1, 2015, pp. 18-37. doi: 10.1111/labr.12071.

Meer, Jonathan, and Jeremy West. ”Effects of the Minimum Wage on Employment Dynamics.” SSRN Electronic Journal, 2012. doi: 10.2139/ssrn.2094726.

Pacheco, Gail. ”Estimating Employment Impacts with Binding Minimum Wage Constraints.” Economic Record, vol. 87, no. 279, 2011, pp. 587-602.doi: 10.1111/j.1475-4932.2011.00722.x.

Pernica, Martin. ”The Business Impact Analysis of the Minimum Wage Valorisation.” Business: Theory and Practice, vol. 18, no. 1, 2017, pp. 88-95. doi: 10.3846/btp.2017.010.

Viet Cuong, Nguyen. ”Do Minimum Wage Increases Cause Inflation? - Evidence From Vietnam.” Asian Economic Bulletin, vol. 28, no. 3, 2011, p. 337. doi: 10.1355/ae28-3d.