The Pros and Cons of Raising the Minimum Wage

The Pros and Cons of Raising the Minimum Wage

Introduction

Minimum wage implies the hour-rate of payment that a worker receives from their employers regarding their age and also their apprentice. The minimum wage was introduced in 1938 by the US government. By then, the wage stood at $0.25 per hour. Ever since that time, the federal minimum wage has changed for over 20 times until 2009 when it was set at $7.25 per hour. Although the federal government has set its limit for wages, several states including California, Ontario, and Florida have set their minimum wages. Most of the states with different minimum wage have opted to go for a higher limit than that set by the federal government (Doyle, 2016). Lately, the government led by President Obama in 2014, several organizations, arms of government, and public members have raised their concern over the need to increase the federal minimum wage from $7.25 per hour up to at least $10.10 per hour (ProCon.org, 2016). However, this has evoked various responses regarding the implications that will result after such a decision.

Various parties including several small companies, employers, and other arms of government have felt that the increase in minimum wage will result to difficulties in meeting the remuneration needs for the workers. At the same time, an increase in the standards of living has led to some viewing increase in the minimum wage as a possible solution to eradicate poverty and also ensuring meaningful life among the public members (Doyle, 2016). Increasing the minimum wage may lead to various impacts in the economy of the country through affecting the rate of inflation, availability of jobs, and development of businesses. Therefore, the increase in the minimum wage in associated with a couple of pros as well as cons. This paper seeks to address both the pros and cons that are  a result of the increase in minimum wage.

The History and Background of Minimum Wage

The minimum wage was introduced in 1938 by the US federal government led by President Franklin D. Roosevelt (ProCon.org, 2016). At the time, the nation was affected by the effects of the Great Depression which led to massive fall of the economy. Therefore, many employers and company were forced to adhere to a minimum wage limit by which to entitle their employees. Then, the minimum wage was set at $0.25 per hour. However, since the 1930s, the federal government has been allowing states to set their minimum wage as long as it did not rate below the limit set at the national level. The Fair Minimum Wage Act of 2007 and the Fair Labor Standards Act (FLSA) were passed by the Congress to ensure that the minimum wage limit is free from abuse by the states, companies, small businesses, and even individual employers (ProCon.org, 2016). At the same time, the parliamentary acts protect the employees from oppression by their employers. So far, the minimum wage has been amended by the federal government for 22 times.  In July 2007, the minimum wage was changed by the Congress for the most recent time where it was set at $7.25 per hour. According to the FLSA, the minimum wage applies to every employee working for an enterprise with an annual gross averaging to $500,000. Also, the wage applies to employees who are directly associated with the provision of labor in the interstate economy. These employees include guards, transport, communication workers, and janitors among others. According to the Department of Labor in the US, there are over 2.5 million workers aged from 16 years and above who are income earners. This makes up for over 3.3% of the total employees across the nation (United States Department of Labor). Since 2014, the government and the private organizations have been proposing for an increase in the minimum wage from $7.25 to $10.10 per hour.

 

Current Status of the Minimum Wage: Pros and Cons of Raising the Minimum Wage

The proposal to raise the minimum wage was introduced in the parliament in 2012-2014 by US Representative George Miller and the former Iowa Senator Tom Harkin. The latter proposed for an increase in minimum wage from $7.25 to $10.10 per hour. However, the proposal did not materialize since the rest of the Congress members did not approve it. Through the Minimum Wage Fairness Act, the proposal received support from President Obama thus making it a debatable bill (ProCon.org, 2016). This paper looks into the various opinions about the pros and the cons that result from raising the minimum wage from its current level. The Republicans opposed the bill. Thus, the bill remained a debatable issue which has not yet been resolved.

  1. Pros

Minimum wage focuses on economic factors such as income inequality as well as the effectiveness in the distribution of the resources and wealth. Although minimum wage varies with the profession especially in some countries such as Costa Rica or India, it is important to ensure that the termed earnings for workers is effective to ensure that they lead to life free of poverty. Firstly, by increasing the minimum wage, it is possible to enhance economic stimulus in the country (Doyle, 2016). Increasing the amount earned by workers in their workplaces ensures that workers can spend more money than they used to do. Thus, more money circulates the economy, therefore, creating a stimulus which is healthy for the economy. Secondly, increased minimum wage also translates into increased job opportunities in the employment sector (Halvorson, 2014). Increased earning leads to an increased spending spree. Therefore, businesses can make more money and also need more employers to handle their services such as sales management. Therefore, more jobs will be created in the employment sector. In this light, raising the minimum wage has a positive impact on the increased unemployment that is currently affecting the country. Increasing the minimum wage will translate into more employees working for different companies, enterprises, and developing businesses.

Thirdly, raising the minimum wage will improve the living standards among the workers. Currently, many workers are leading impoverished lives instilled to them by the little salaries that they earn. Many workers are unable to meet various costs in their lives such as hospital and medication, education, housing, and food and clothing costs due to the limitations brought about by the wages earned. In 2014, the proposal to increase the minimum wage up to $15 per hour was found to potentially increase the income earned by over 7.5 million families in California (United States Department of Labor). In the children care and education sector, this would translate into effectiveness through improving the results and performances both at home and in school among the children from these families (Doyle, 2016).  Currently, children from impoverished families are associated with low performance in school. The children are likely to miss school days due to lack of various needs such as foods, clothing, and even finance required for their school fees. This may result to increased poor living standards for the families as they try to make the ends meet. Therefore, increasing the minimum wage will result to improvement in the standards of life among the workers. Fourthly, there are various factors that lead to income inequality in the US. These factors include gender, age,  racial segregation, and also payment of employees according to their profession. Therefore, through raising the minimum wage, it is possible to eliminate the income inequality that affects the US society (ProCon.org, 2016). Normally, women, young employees, and members of some races are entitled to lesser salaries than their counterparts. As a result, this leads to income inequality and eventually social stratification in the society. Through ensuring that the less-income earners take home meaningful income, the decision to raise the minimum wage will significantly reduce the inequality in terms of income among the members of the public (Sklar, 2017). At the same time, this step will lead to an easier way for the societal members to rise in the social mobility as a result of the wages changing lives of all the works regardless of their social backgrounds.

Fifthly, increasing the minimum wage will have a significant impact through the reduction of overreliance on the social government programs (ProCon.org, 2016). Due to the insufficiency of the income acquired as wage, many families end up relying on social programs from the government. These programs include health services, education programs, and also food programs. In this light, the government has an overstretched budget in its bid to cover up for all the requirements. This translates into a higher taxation for the citizens and also the small businesses. In that case, therefore, it is impossible for the small businesses and companies to develop easily bearing of the high taxation they are entitled to. Where the minimum wage is raised, people will be more self-sufficient and less-dependent on the social programs provided by the government. Lastly, a higher minimum wage will result to a lower turnover rate among the employees (Doyle, 2016). In 2014’s California Proposal to increase the minimum wage, one of the reasons supporting the proposal was the increased turnover rate. Many employees who are not comfortable and satisfied in their jobs end up quitting their positions. Therefore, increasing the rate of wage will ensure that more and more employees feel comfortable by having all their needs met through the income that they acquire.

  1. Cons

Minimum wage increment means that the budget reserved for employees should also increase to accommodate the changes. Currently, many states such as California, Florida, and Massachusetts have their minimum wages far beyond that set by the federal government (United States Department of Labor). However, some states such as Alabama, Mississippi, Louisiana, South Carolina, and Tennessee have their minimum wage at the same level as that of the federal government at $7.25 per hour. In the past, raising the minimum wage was seen to result in some negative impacts such as adjusted inflation, strenuous budget, and inability to successfully eliminate poverty among some families. Also, other cons may be brought about by having the minimum wage at a higher level than before.

Firstly, raising the minimum wage will reduce the need for workers (Halvorson, 2014). Many companies and businesses will prefer to use automated services such as automated processes, machinery, and technologies in their production and management functions. This step will turn out to be cheaper than the high cost of hiring employees at the expense of the increased minimum wage which will extend their salaries. There will be fewer opportunities for hiring employees with their services being less needed in workplaces. Therefore, this will lead to an increase in the unemployment in the nation (Doyle, 2016). Currently, the US Bureau of Labor Statistics terms the unemployment rate at 4.4% as at 2017. This rate has decreased from the previous rate at 2015 which stood at 5.2%. The results were brought about by the emergence of more jobs in various sectors such as constructions, health care, professional and technical services, manufacturing, and also mining. However, most of these sectors have been able to hire more employees with the current rate of minimum wage. In a case where the minimum wage is increased, most of these sectors will hire fewer employees than they used to do before. According to the Federal Reserve Bank of Chicago, increasing the minimum wage by 10% will translate into 2-4% loss of employment. Therefore, the unemployment rate is likely to rise as the minimum wage increased.

Secondly, increasing the minimum wage will result to increase in prices. There will be the increase in prices in various sectors for goods and services such as food products, transportation, housing, education, and medical services. Many businesses and companies will look forward to increasing the prices to maintain their profitability. Higher profits will be needed to make for the cost of paying the employees. For instance, there will be an increase in the cost of housing in the densely populated areas such as Los Angeles or New York City (ProCon.org, 2016). This is due to the increased purchasing power among the workers which is predicted to outpace the rate of growth in the housing sector potentially. In California, many parents reported a change in prices charged for day-care and preschool programs services after the increase in minimum wage. Therefore, this might increase the need to have part-time earnings and also the need to handle some tasks to reduce the cost of services which is likely to increase as the minimum wage rises.

Thirdly, raising the minimum wage will negatively affect the small businesses (ProCon.org, 2016). Small businesses and companies will entitle their employees to higher salaries to comply with the requirements of the changes. These small enterprises will indefinitely reduce the rate of hiring for them to be able to cater for the salary requirements of their employees according to the law. Reducing the number of workers in an enterprise will also reduce the rate of production. They will also reduce their profitability since a lot of their earnings will make for the payment of their employees. As a result, these businesses and companies will have a slow growth rate. Fourthly, raising the minimum wage does not solve the issue of poverty (United States Department of Labor). In a case where the minimum wage will be raised, many businesses and service providers will tend to increase the prices of their commodities too. The US economy has been developed amidst a capitalistic society where individuals and businesses work to ensure their profitability. Therefore, raising the minimum wage will come with high costs of housing, education, medication, and transportation among others. As a result, the families living in poverty will have to stretch their budget to cover for the extended costs. In that case, therefore, raising the minimum wage does not provide the answer to the issue of poverty in the US society. Instead, the increase may result to the danger of inflation. This will take place where a lot of money circulates in the economy for the same goods and services that were previously acquired at a lower cost.

Lastly, many businesses and companies like operating where the production and management costs are low. However, with the idea of raising the minimum wage at the corner, it is likely that the cost of production and management will significantly rise. In such a case, therefore, many companies and businesses will consider outsourcing their labor requirements from places where it will be cheaper. This means that employers will consider hiring workers from other countries and regions to ensure that they can meet the cost of labor. Thus, this will eventually lead to massive loss of jobs. According to a report by the Center for Economic and Research Policy in 2014, raising the minimum wage may lead to a loss of over 500,000 jobs to other countries (Halvorson, 2014). Employers will consider hiring workers from other places as long as they can fill the void in the employment vacancies with a minimum requirement in wage. This may render many public members jobless and unable to meet the needs in their lives.

 

Evaluation and Future Implications of Raising the Minimum Wage

For over 100 years, many businesses and companies have adhered to the minimum wage as required by the state and the federal government. Currently, 29 states out of 50 in the US have their current minimum wage above that set by the federal government. These states are led by the District of Columbia and Massachusetts which has their minimum wages at $11.50 and $11.00 respectively (Sklar, 2017). However, the remaining 21 states have their minimum wage at the same level with that of the federal government. Therefore, raising the minimum wage may not have an impact on some states which have decided to increase their level. At the proposed $10.10 per hour increment, some states such as DC, Washington, and Massachusetts will be way far from the lowest standard (ProCon.org, 2016). Thus, this decision may not affect their budgets and the growth of the small businesses and companies.

On the other hand, some states such as Alabama, Louisiana, and South Carolina among others who have their minimum wage at the same level with the federal standards may experience some challenges in ensuring that the increment goes hand-in-hand with their requirements to sustain budgets and development. Although raising the minimum wage is an essential step to minimize poverty and financial challenges among the workers, the government should ensure that products and services remain at the same price. This will prevent exploitation of the same workers by businesses, companies, and service providers in the interest of maintaining profitability.