The minimum wage debate

Any time the topic of the minimum wage comes up in a discussion around the world, it elicits heated debate. The minimum wage is the lowest rate an employer will pay an individual per hour for services rendered. In order to protect jobs from poverty, the United States has long had laws governing the minimum wage at both the federal and state levels. Over the years, politicians have proposed raising the sum to a national level in order to empower unskilled employees to raise enough money to live comfortably. Minimum-wage jobs have recently protested for a wage increase to $15 per hour. This figure translates to $600 for a 40 hour week, $2400 per month and $28,800 per year for a single worker. While this may not be a lot according to today’s standard of living, this amount will deal a significant blow to companies especially if we keep in mind that they employ hundreds if not thousands of workers. Raising the minimum wage would upset the forces of supply and demand leading to massive layoffs, high costs of living and an ailing economy as companies try to find ways to deal with the high labor costs.

An increase in the minimum wage would have a detrimental effect on the employers and the economy at large. Despite the attempt to raise the income for workers as a strategy to minimize poverty in the nation, economists note that it would lead to high labor costs, which does more harm than good. To begin with, it would make the hiring of younger and less skilled workers very costly. Businesses would be forced to look for alternative ways to meet their profits. The company may decide to reduce its employees thus saving on costs. This move will benefit the businesses but ends up creating an unemployment problem. Many low-skilled workers and those in the early stages of their careers will be left out hence increasing joblessness (Clemens). Businesses may also be forced to lay off some of its workers to accommodate what their budget can support in response to the minimum wage laws. Doing this will affect the economy negatively as the government will have to spend more money to sustain its unemployed population especially those in dire need.

Raising the minimum wage would attract more interested applicants in a sector that was initially low paying. People with more skills that were out of employment, such as retirees, will be motivated to seek jobs even if on a part-time basis. In addition to doing the menial jobs, they can offer their expertise in other areas of the company. For example, a retired accountant is of more benefit than an average worker because they can work at the register and balance the books once the day is over. Employers will prefer to hire these new skilled applicants to justify paying them such a high amount. The rest of the unskilled demographic will be disadvantaged because no one would be willing to pay a lot given their inexperience. At the end of it all, many of them will remain unemployed.

Increasing the minimum wage would mean the reassessment of a company’s budget to satisfy the wage demands of the workers. This would lead to the possible removal of the employee benefits, such as insurance, that are useful in motivating employees to give their best in the workplace. The resulting consequence would be the reduction in employee productivity which affects the firm’s overall production. This leads to a fall in the profitability of the company which not only negatively affects the organization but the economy of the country as well.

In the face of mandatory hiked wages, many companies would choose to re-strategize to ensure that their profit margins are within the desired levels. One of the ways to do this is through increasing the prices of its products which would contribute to the rise in the cost of living. A high cost of living would considerably ’eat’ into the income earned by the employees thus working against the efforts to live above the poverty line. The increase in prices may also cause consumers to shun the company’s products leading to losses on their part. With little profits coming their way, companies may be forced to shut down rather than continue to operate at a loss.

Escalating labor costs may adversely affect the competitive advantage of a business establishment. It makes it prone to competition from other efficient organizations both in the country and beyond. The high cost of production, due to expensive labor, is passed on to the consumer when the company exports its products. The high prices may lead to reduced exports as the companies face stiff competition from other nations producing similar products but at a lower cost (Corwin 18).

Many may opt to outsource cheaper labor from other nations motivated by the lower costs, high-profit margins and the need to stay competitive. The competition might also lead to the production of low-quality products at higher rates to cater for the huge labor expenses incurred by the company. The low-quality products do not compete favorably in the international market leading to a drop in the overall foreign income thus impacting the economy negatively.

A large part of the debate about the minimum wage forms its basis on the thought that increasing it would help to reduce poverty. This idea is far from the truth. The money driven into hiking the minimum wages for the employees seems to be crippling other anti-poverty programs. The money could be invested into education and job preparedness plans which are more efficient at curbing the poverty problem by increasing the employment opportunities for the people. Businesses can also use this money to build their strength and capacity to take in a significant number of workers thus ensuring that a large fraction of the people can meet their daily basic needs from the income they earn. The government and the lawmakers should, therefore, focus on diversifying the income earning opportunities rather than increasing the lowest pay which only affects a small fraction of the workforce.

Companies will try to compensate the rise in labor charges by sourcing for cheap raw materials from other countries. This option will lead to the weakening of other areas of the economy that provide the raw materials such as the agricultural sector. The farmers will suffer as their earnings reduce due to the little demand for their products in the market. Eventually, this will stunt the growth of the economy and its effects will be felt in all the other sectors of the economy.

Proponents of the minimum wage debate have always viewed this as a way to ensure the working poor earn enough to live above the poverty threshold. While this might be a great concern, it is not always the case because high labor costs discourage hiring and employers might be forced to resort to other means to help them stay afloat. Raising the minimum wage would also hurt the economy as masses go unemployed unable to contribute to the running of the country through taxes. The companies will choose to set up shop elsewhere where the labor conditions are favorable which further hurts the economy. In order to preserve the little income the unskilled workers earn and to ensure that the economy is stable, the minimum wage should not be increased.

Works Cited

Clemens, Jeffery. “How Does the Minimum Wage Affect Employment?” weforum.org. 15 Jan 2015. https://www.weforum.org/agenda/2015/01/how-does-the-minimum-wage-affect-employment/

Corwin, Conner M. “Raising the Minimum Wage: Both Sides of the Coin.” University of Tennessee Honors Thesis Project. 2007, http://trace.tennessee.edu/cgi/viewcontent.cgi?article=2059&context=utk_chanhonoproj