The issue of the minimum wage in the US dates back to 1938 when President Roosevelt introduced a 25 cents/hour wage as the lower limit earning for any employee. The intentions of introducing the minimum wage were noble as the move sought to protect low-income earners from exploitation by employers, coupled with lifting them from poverty. However, with time, it emerged that having a minimum wage in place would have some negative effects on all the involved stakeholders.
Besides, as the cost of living increased, lobby groups started pushing the administration to raise the minimum wage. This move compounded the inherent problems surrounding the issue of the minimum wage. Consequently, the debate on minimum wage became controversial. This paper explores the topic of raising the minimum wage by discussing its pros and cons, together with the emerging controversies on the same. Nevertheless, increasing the minimum wage will improve the living conditions of Americans.
Background of the issue
The contemporary debate on raising the minimum wage intensified in 2014 when President Obama announced plans to increase the lower limit wage by 40% from 7.25 dollars to 10.10 dollars/ hour. The proponents of this suggestion argued that low-income Americans are entitled to better wages for them to lead decent lives. In 2015, cities like San Francisco, Los Angeles, and Seattle passed a $15/hour minimum wage bill.
Afterward, the MacDonald’s announced that it would increase the minimum wage to $10/hour as part of a plan to raise wages for about 0.5 million workers. However, critics of raising the minimum wage point out that such a move would have adverse long-term effects on the economy, the government, and the American society. Apparently, both the critics and the proponents have valid points, thus the controversies surrounding this issue merit its discussion.
Why the issue is controversial
The controversies surrounding the increase of minimum wage hinge on the anticipated outcomes. The proponents of raising the minimum wage view the issue from a utilitarianism perspective to conclude that the move would benefit the majority of low-income families by lifting them from poverty. On the other side, the critics hold that raising the minimum wage would be counterproductive as ultimately, there would be increased unemployment, which will hurt the very families that the proponents seek to protect.
Based on the neoclassical theory of minimum wage effects, “If the mandated wage exceeds the market-clearing wage, then, given a downward-sloping labor demand curve, firms reduce the quantity of labor demanded” (Card and Krueger 112). On the other side, empirical labor economists argue that increasing the minimum wage marginally does not have adverse effects on low-income families (Waltman 82). Therefore, each side of the debate has evidence regarding supporting or opposing the raising of the minimum wage, which makes the topic controversial.
The proponents and critics of raising the minimum wage agree on some elements concerning the issue. First, both sides agree that the issue of income inequality should be addressed, but they differ on the modality of achieving this goal. Besides, the two sides agree that poverty should be eradicated from American society. However, while the proponents argue that low-income families will benefit from raising the minimum wage, the critics hold that the government should give more incentives to businesses as a way of creating employment opportunities.
This way, the majority of low-income families will remain in employment. On the other side, the government argues that policy-making is a long process, and it will take some time to turn around the economy; however, the immediate and appropriate step towards poverty eradication is through increasing the minimum wage. In light of this argument, it suffices to conclude that both sides agree that poverty eradication is a critical element in the American society.
The first opposing view of increasing the minimum wage is that there will be layoffs and decreased hiring of new employees, hence unemployment. According to the neoclassical theory of minimum wage effects, if employers are forced to pay high wages and maintain the same operating budget concurrently, then they will be forced to lay off some workers (Card and Krueger 112). This way, the fixed operating budget will cater for the increased wages for the remaining workers.
Additionally, employers will not hire new employees frequently because it becomes expensive to recruit and maintain a worker. Based on this understanding, the opponents of raising the minimum wage argue that the move will ultimately create unemployment. Therefore, raising the minimum wage will be counterproductive as it creates wealth for a few while sentencing others to poverty due to unemployment.
The second opposing view is that companies will increase the cost of their products to generate more revenue. The primary purpose of the existence of any business venture is to make profits. Therefore, if the government implements policies that hurt this profit-making pursuit, then organizations respond by exploiting other means of remaining profitable like raising the cost of goods. The increased revenue allows the employers to meet the soaring minimum wage requirements without straining the operating budget.
The ripple effect of this move will be felt across all industries, thus affecting the cost of living upwards. Ultimately, the raised minimum wage does not benefit the low-income individuals because they end up spending more in purchasing the necessities. Besides, there will be calls to raise the minimum wage once again due to the increased cost of living. The cycle continues and running a business becomes unsustainable.
Thirdly, raising minimum wage creates skill gaps in the workplace in the long-term due to increased competition. Following layoffs and job cuts occasioned by raising the minimum wage, overly experienced individuals start competing for opportunities meant for low-income earners, who are mostly inexperienced. To maximize on the labor force, companies will prefer experienced workers willing to work for minimum wages to young and inexperienced employees.
Therefore, the young generation will miss the opportunity to develop the requisite skills in the job market. On the other side, the experienced employees will ultimately age and retire. In the long-term, after the retirement of the experienced employees, there will be a shortage of skilled labor force because companies could not afford to hire inexperienced workers and train them for posterity.
The view that raising the minimum wage will lead to layoffs is abstract and unfounded. First, the number of minimum-wage earners in different companies is minimal, and thus increasing the rates will have insignificant effects on the remuneration budget. According to the US Bureau of Labor Statistics, only 3.9% of hourly paid workers earned the minimum wage of 7.25 dollars/hour in 2014 (1).
Therefore, this number is marginal, and it is unlikely to have major impacts on organizations’ operating budgets. Besides, as mentioned before, businesses seek to make profits and one of the ways of maximizing this pursuit is to have minimum-wage earners on the payroll. Some activities require little or no experience, and thus it may be counterproductive for companies to hire experienced individuals to undertake such tasks. Ultimately, companies will be compelled to hire inexperienced individuals, pay them the minimum wage, and train them to bridge the skills gap in the workforce.
Similarly, the claim of companies increasing the prices of goods does not hold in the face of globalization. Globalization allows companies to outsource some tasks to other countries where labor is cheap or affordable. This way, such companies remain competitive in the market by maintaining reasonable pricing of products. Besides, businesses have to remain competitive as a way of attracting customers, which increases revenue.
A company cannot decide to price its products expensively while its competitors offer lower price points. Therefore, organizations will look for innovative ways of accommodating raised minimum wages without necessarily increasing the prices of their products and services. Moreover, the government can offer incentives including tax breaks to encourage companies that price their products reasonably.
Supporting my position
Raising the minimum wage will act a stimulus for the US economy. Key businesses in production and manufacturing will expand, as low-income individuals will have money to spend. As opposed to middle and upper-class individuals, who hoard money for future use, low-income earners spend their earnings immediately. This aspect means that businesses grow due to the increased consumption from the low-income earners (Neumark and Wascher 103). The businesses will thus expand, create employment opportunities, and pay more taxes. This occurrence is a positive move for all the involved stakeholders, viz. the employees, the government, and the businesses.
Besides, increasing the minimum wage reduces unemployment by cutting down the rate of turnover in the labor force. When employees are remunerated decently, they will not quit employment due to dissatisfaction associated with wages. Therefore, the rate of unemployment will remain low, as workers will not be leaving employment to join the jobless class. Additionally, companies will benefit from low turnover rates by avoiding the costs associated with hiring new employees.
According to a study carried out in 2010, raising the minimum wage for the last two decades led to decreased unemployment rates (Dube, Lester, and Reich 961). In essence, following the “minimum-wage increase in 2009, Alabama and Tennessee’s unemployment rates fell by 1.6 percentage points and 1.4 percentage points, respectively, compared to a decline in the national unemployment rate of only 0.1 percentage points” (Dube, Lester, and Reich 961). Apparently, increasing the minimum wage motivates the employees, who in turn perform optimally, thus increasing revenue. Companies with increased revenue will expand and create employment opportunities for the jobless individuals.
Finally, increasing the minimum wage will address the income inequality problems being experienced in the American society today. From a sociological perspective, income inequality creates numerous social problems like crime, drug abuse, and moral decadence among others. According to Stiglitz, the growing income inequality “has significant implications for growth and macroeconomic stability, it can concentrate political and decision-making power in the hands of a few, lead to suboptimal use of human resources, cause investment-reducing political and economic instability, and raise crisis risk” (93).
According to US Department of Justice, individuals from low-income households are twice more likely to engage in crime and violent behavior as compared to their counterparts from high-income households (1). Therefore, as a way of achieving a balanced society that thrives on diversity, the minimum wage should be raised to a level that the earners can lead decent lives.
Statement of merit
Therefore, based on the arguments presented in this paper, it suffices to conclude that minimum wage should be raised as it improves the living standards of Americans. Raising the minimum wage will benefit all the involved stakeholders. For instance, employees will have more money to lead decent lives while businesses will experience increased revenues, which meets the objective of profit maximization. On the other side, the government will benefit from increased tax returns from the thriving and expanding businesses. Finally, the society will be a better place to live as the rate of societal vices like crime and drug abuse will decline significantly.
Raising the minimum wage will improve the living standards of Americans. The low-income families will have increased earnings, which will improve their purchasing power. The high-income earners will have an enabling environment to enjoy their wealth without worrying about runaway organized crime. The government will benefit by collecting more taxes occasioned by the growth of businesses.
As shown in this paper, the opposing views of raising the minimum wage are mostly unfounded and some can be addressed through policymaking. In the future, the proponents and critics of raising the minimum wage will shift the debate to proving their arguments empirically. Each side is expected to focus on research to prove its point using credible data. Currently, the debate is mainly based on unverified data. However, with the proposition to raise the national minimum wage to $15/hour by 2022, scholars gather enough data to draw informed conclusions on the issue.
Card, David, and Alan Krueger. Myth and Measurement: The New Economics of the Minimum Wage, Princeton: Princeton University Press, 1997. Print.
Dube, Arindrajit, William Lester, and Michael Reich. “Minimum Wage Effects across State Borders: Estimates Using Contiguous Counties.” The Review of Economics and Statistics 92.4 (2010): 945–964. Print.
Neumark, David, and William Wascher. Minimum Wages, Cambridge: MIT Press, 2010. Print.
Stiglitz, Joseph. The Price of Inequality: How Today’s Divided Society Endangers Our Future, New York: W. W. Norton & Company. Print.
US Bureau of Labor Statistics. Characteristics of Minimum Wage Workers, 2014. BLS Report 1054, 2015. Web.
US Department of Justice. Household Poverty and Nonfatal Violent Victimization, 2008–2012. NCJ 248384, 2014. Web.
Waltman, Jerold. The Politics of Minimum Wage, Champaign: University of Illinois Press, 2000. Print.