The minimum wage was introduced many decades ago to secure the rights of workers and ensure that employers would not make people work for extremely low wages. This standard is a common instrument utilized in many countries, including the USA. This tool is one of the measures to address the needs of poor people. The minimum wage increased considerably throughout the 20th century, from $0.25 in 1900 to $7.25 in 2016 (Ehrenfreund). At present, the debate is still ongoing, although many states are raising the minimum wages, which is seen differently in society. Democrats welcome such policies as they stress the need to ensure the improvement of the lives of unskilled workers. At the same time, many people, irrespective of their political views, have a negative attitude towards the increase since, in their opinion, it has adverse effects on business and the overall development of the country. This opinion is well-supported as research shows no significant improvements in poor people’s lives and certain negative outcomes for companies and entrepreneurs.
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The Impact of the Growth on the Well-Being of the Poor
As mentioned above, one of the primary arguments to support the hike of the minimum wage, as well as to have this standard, is the focus on the wellbeing of the underprivileged populations. According to a recent study, some unskilled workers do benefit from the increase, but the positive effect is rather minimal (Taylor et al. 273). Researchers note that a $15 minimum wage does not reach the expected objectives, and tax credits can be a more justifiable and effective strategy to help people living in low-income neighborhoods address their financial issues. It is stressed that the base wage increase to $15 is unnecessary as it does not meet the needs of the target population. At the same time, this change in the minimum paid to unskilled workers hurts businesses and the economic development of the country, which will be discussed in detail below.
It is also necessary to add that the overall welfare and satisfaction of the people who tend to agree to low-paid jobs have not changed after the growth of the base pay. Kuroki states that the subjective well-being of people receiving minimum wages saw a 10% increase after the changes (e171). However, it is important to note that the focus was on the people with a high-school education and those without a high-school diploma while college graduates were excluded. Moreover, the degree of satisfaction varied across these groups considerably and could be associated with various factors, including but not confined to minimum wage raise. It is also important to add that society has divided into two camps with an almost equal number of people. Only 52% of Americans support the increase of the standard, while 46% oppose it (Ehrenfreund). Although there is a positive shift in some areas, the downsides of the policy are more substantial and can lead to more adverse effects in the long run.
Economic Outcomes of the Growth of the Base Wage
The opponents of the increase in the minimum wage come from diverse backgrounds and are often employed in different industries, which shows that the potential harm of the new federal legislature can cover various settings. Unexpectedly for many, thousands of low-paid workers opposed the decision to raise base pay. For instance, tipped servers in the food industry emphasize that their income is likely to decrease if the minimum wage is higher than the previously set standard (Dewey). Tipped restaurant workers argue that they will receive less in tips, which is unacceptable as this is the primary source of their income. Many people are determined to address the authorities to let them work without any changes. Workers employed in other industries are also concerned about possible outcomes as they fear they will lose their jobs (Moore 28). They state that the minimum they get is sufficient, while the introduction of the new base pay will make employers hire fewer people or even fire current workers.
Apart from restaurant workers, researchers also find more negative consequences than good effects in the increase in the minimum wage. The recent study suggests that the costs of the change to the target population outweigh the benefits considerably (Ehrenfreund). It is noteworthy that the credibility of the research has been questioned as large employers were excluded from the study. Nevertheless, similar findings have been provided by other researchers.
For instance, Moore notes that the hike of the base wage will lead to considerable adverse effects (28). The major negative consequences will include the loss of jobs and financial losses for small businesses. Moore argues that the set minimum does not exclusively address the needs of the poor as it can facilitate work migration (28). Instead of improving poor families’ well-being, the new legislation will result in more unskilled workers in some areas and the lack of such employees in other places. This disproportionate distribution of the labor force may lead to the deterioration of some communities. Many poor people will also lose their jobs as employers will be unable to provide higher wages to more people. Hence, instead of improving the financial status of underprivileged people, the increase in the minimum wage will make thousands of people reliant on governmental aid.
Small businesses and entrepreneurs will be most affected by the change of the base pay. They will have to hire fewer workers, or even avoid hiring anyone and perform numerous tasks on their own, which may lead to poor performance and profit. On the macroeconomic level, the shifts in the standard will have negative outcomes as well (Taylor et al. 273). Small businesses will become less competitive, and entrepreneurs may be less motivated to continue their activity. The number of people receiving different types of financial aid from the federal and state budgets will grow, which will cause more pressure on governmental funds. The stakeholders that will receive the highest benefits are large companies that may avoid using low-skilled labor and do not pay minimum wages to many of their employees. Corporations may replace this kind of labor in many ways, including outsourcing or automatization.
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However, the benefits for large businesses mentioned above are also associated with significant losses for the country’s economy. The increased number of unemployed people, the need to support more families, and the decreased number of small businesses negatively correlate with the development of the economy (Taylor et al. 273). The associated negative consequences may also lead to considerable tension within the society, as the gap between the rich and the poor is likely to grow.
Hence, it is necessary to reconsider the policies related to the increase in the minimum wage. There are more effective alternatives to the present approach, and the government can help vulnerable populations without making employers pay more for unskilled labor. Of course, it is important to ensure that the base pay exists at a certain level to avoid the irresponsible behavior of employers. However, the level of this standard should be economically justified and beneficial for the development of the country’s economy. Although the rise of the base wage can help some groups, it will harm larger communities and can deteriorate the economic growth of the USA. It is more viable to introduce tax credits and other incentives to support those in need and provide businesses with an opportunity to remain competitive.
In conclusion, it is necessary to note that the increase in the minimum wage is a debatable initiative that is associated with serious negatives effects. Although it has a positive impact on some groups, it is largely harmful to the country’s economic development. The negative consequences can result in substantial losses for some unskilled and low-skilled workers, entrepreneurs, and small businesses. Only large companies have instruments to mitigate the negative outcomes of the policy, but these tools will lead to further deterioration of the U.S. economy. Since the public is torn into two camps, it can be advisable to turn to the previous minimum and continue the debate, as well as research regarding the matter. The $15 minimum wage is not favorable for the majority of the population and the overall growth of the country.
Dewey, Caitlin. “Maine Tried to Raise Its Minimum Wage. Restaurant Workers Didn’t Want It.” The Washington Post. 2017, Web.
Ehrenfreund, Max. “A ‘Very Credible’ New Study on Seattle’s $15 Minimum Wage Has Bad News for Liberals.” The Washington Post. 2017, Web.
Kuroki, Masanori. “Subjective Well-Being and Minimum Wages: Evidence from U.S. States.” Health Economics, vol. 27, no. 2, 2017, pp. e171-e180.
Moore, James S. “Increasing the Federal Minimum Wage: An Implications Side-Bar for “Mom and Pop” Employers.” Journal of Collective Negotiations, vol. 32, no. 1, 2008, pp. 19-31.
Taylor, Lance, et al. “Wage Increases, Transfers, and the Socially Determined Income Distribution in the USA.” Review of Keynesian Economics, vol. 5, no. 2, 2017, pp. 259-275.