Introduction
The issue of minimum wage has raised significant concern in many countries across the globe due to the increased debate around economic disparities. The main focus among economic experts and the government is to establish a reasonable balance between social justice and financial necessity. Originally, minimum compensation was supposed to cover a selective category of employees, especially those considered to be vulnerable in society. It was first established in New Zealand before spreading to other countries across the world.
Minimum wage denotes the agreed amount of compensation that an employer is supposed to give to earners in consideration of the performed work over a particular period. This minimum agreed amount cannot be decreased by virtue of individual contracts or collective agreements. There is serious debate on whether improving the minimum compensation hinders or helps workers and businesses. This essay elaborates on the complex issue of minimum wage, analyzing its impact on economic stimulation, the livelihood of employees, wealth distribution, and its suitable dimensions requiring a balanced strategy with multifaceted outlooks.
Economic Stimulation
Improving minimum compensation significantly leads to favorable economic performance due to its stimulating effects. Promoters claim that an increased minimum wage results in increased consumer spending, hence boosting economic performance. This is due to the improvement in individual purchasing power, which has the overall effect of increasing demand for products in the industry.
Improved demand for goods will attract more investors in the market, leading to the creation of more job opportunities. Research reports have demonstrated that a slight increase in wages by one unit results in more than a single unit improvement in economic performance (Chava et al. 63). This implies that a modest improvement in remunerations has the potential to lift many individuals from their state of poverty.
However, care must be taken while attempting to improve the minimum wage as the act can potentially increase the inflationary levels. Compelled increase in least compensation rates might lead employers to institute countermeasures such as passing the cost to consumers by increasing the prices of products (Chava et al. 68). In addition, there must be a clear consideration of the general effect of the proposed increase as this has the potential of discouraging investors especially those in labor-intensive markets. Therefore, increasing wages need to be phased in depending on the ability of the employer to avoid these occurrences.
Workers Livelihoods
In the push for better remunerations, the first issue worth consideration is its effect on the livelihood of workers. Proponents of minimum compensation claim that its increase is indispensable to desirable living standards. The Institute for Economic Policy denotes that increased minimum remuneration significantly relates to a reduction in levels of poverty (Neumark et al. 396).
In simple terms, better wages enhance employees’ ability to meet their needs, thereby reducing the overreliance on the government for basic support. This prevents the diversion of state funds meant for development as the government attempts to meet the basic needs of its citizens. Increasing remuneration for workers also leads to enhanced motivation among workers, hence stimulating their productivity.
Increased production will ultimately result in desirable sales and better profit margins. However, it is essential to establish the ability of the firm to implement and sustain the proposed wage rates to prevent cases of job losses. Unsustainable wages have the potential of scaring potential investors and general retrenchment of workers as the firms attempt to cope with the new changes. Although advocates continually emphasis that it is unjust for anyone involved in fulltime employment to struggle due to low wages continually, it is fair to allow the existing market forces to determine the appropriate remuneration for each staff (Neumark et al. 397). This will help to prevent cases of job losses as most of the firms attempt to reduce their unaffordable operational costs
Enhancing Wealth Distribution
Supporters of improved low wages argue that the practice helps bridge the gap in income disparities among individuals across the globe. This is known to have the general effect of fueling the increase of socioeconomic inequality, which obstructs desirable social mobility among workers in the economy. Research on the federal least wage has demonstrated that the purchasing ability of workers in this category has significantly been deteriorating, failing to align with existing productivity earnings and inflation levels (Jedwab et al. 143). Such stagnation in income growth among low-income workers has led to increased income inequality.
Increasing the minimum remuneration rates helps to increase wealth distribution among workers as it becomes desirably equitable, bridging the existing gap between the lowest and highest earners. The International Monetary Fund research shows that reducing income inequality helps ensure sustainable economic development alongside social cohesion among workers (Jedwab et al. 145). This will lead to teamwork and accountability of workers in their jobs as they feel their needs are being addressed. Such a sensation promotes hard work, making the firm earn more due to increased productivity. Equal distribution of wealth leads to desirable economic performance as workers get involved in other business activities outside their full-time jobs, thereby creating employment for others.
The Economic Effect on Businesses
Before embracing changes in minimum pay, it is desirable to consider its effect on the economy. Critics of the least wage adjustment claim that the practice significantly impacts enterprises, especially small businesses (Neumark et al. 403). Reports have shown that an upward adjustment in the minimum wage results in a general decrease in profit margins, especially for small businesses (Neumark et al. 403).
This, in turn, will compel the firm to institute countermeasures that aim at making it adapt to the change (Neumark et al. 408). Such measures would entail increasing the prices of products or reducing the number of workers. These happenings will result in poor economic performances, hence creating a barrier to its adoption, especially by new firms
In addition, an increased cost of labor sets a higher bar for the establishment of new firms that will require an increased amount of capital to start. This will prevent most potential investors from entering the market as most of the beginning firms are unlikely to be able to afford this in its early stages. Moreover, this practice might lead to the creation of a monopoly, whereby only a few firms that can afford the cost are allowed in the industry due to the existing cost restrictions for new entrants.
In an attempt to cope with the labor cost, increasing the prices of products will cause small firms to lose their market share to bigger enterprises that are selling at relatively lower amounts due to economies of scale (Jedwab et al. 146). Therefore, the requirement by law or by social groups to increase the minimum wage has the potential to amplify the setbacks faced by small and already established firms as well as beginners. Proposals need to consider such firms and establish fair legislation that favors their existence in the market.
Due to the existing complexity of the minimum remuneration rule, there is a need for the involved bodies to institute a balancing act for the desired intervention. While considering the need of fair wages, policymakers are charged with the responsibility of enacting a well-nuanced system that billets both economic variations and regional discrepancies (Jedwab et al. 154). In this case, practices such as phased adjustment of the minimum remuneration rates for various sectors are worth consideration. This approach creates room for the business to gradually adapt, reduce employment shocks, and ensure the sustainability of enterprises.
Conclusion
In conclusion, the minimum wage debate involves different perspectives, and each proponent has a stance that depends on their dissimilar social, economic, and ethical considerations. Raising the minimum remuneration has the potential to enhance workers’ welfare and, at the same time, raises concern over its ability to ensure sustainable economic stability and the success of small businesses. Proponents of minimum wage argue that by increasing the average wage rate, the state tends to uphold the poise of its labor, lead to a more prosperous and equitable future, and endorse the wellness of its workers.
However, critics relate the practice to job loss, increased prices of products, and creating barriers to the existence of smaller firms. As a result, the economy, businesses, and workers must handle the need for fair wages clearly. This is a major challenge among policymakers who, in most cases, fail to strike a desirable balance. Informed consent and nuanced strategies are the only means through which a state can reduce the setbacks of the minimum wage determination.
Works Cited
Chava, Sudheer, Alexander Oettl, and Manpreet Singh. “Does a One-Size-Fits-All Minimum Wage Cause Financial Stress for Small Businesses?” Management Science (2023). Web.
Dustmann, Christian, et al. “Reallocation effects of the minimum wage.” The Quarterly Journal of Economics 137.1 (2022): 267-328. Web.
Jedwab, Remi, Noel D. Johnson, and Mark Koyama. “The economic impact of the Black Death.” Journal of Economic Literature 60.1 (2022): 132-178. Web.
Neumark, David, and Peter Shirley. “Myth or measurement: What does the new minimum wage research say about minimum wages and job loss in the United States?” Industrial Relations: A Journal of Economy and Society 61.4 (2022): 384-417. Web.