Abolishing of Minimum Wage in USA
The minimum wage is defined as the lowest rate per hour, day or month that employers may legally pay to employees or workers (Bob, 1997). Currently, minimum wage laws are found in more than 90% of all countries globally. The laws were initially enacted in the 19th century, and a country where minimum wage law was enacted first was in Australia and the New Zealand.
Minimum wage has been supported by some people who argue that it is a way of ensuring that all people can work in order to afford their basic necessities. Other advantages of minimum wage include; it does not give a budget burden on the government, increases social welfare program costs and growth of employment when the minimum wage is increased.
On the other hand, minimum wage is thought to increase unemployment hurt small business and increase in inflation. The united stats of America established its minimum wage system in 1938 (Candace, 2005) the minimum wage has been $5.15 per hour. This has been stagnant for nine years in the United States. The cost of living in the USA has risen by 26 percent.
The USA senate rejected a proposal that was meant to raise the minimum wage from $5.15 per hour to $7.25 by the year 2008. This remained unchanged for nine years.
According to the EPI (Economic Policy Institute) an estimated 14.9 million workers who fall under the minimum wage payroll would have benefited from the proposal. Though the proposal was rejected some federal states increased the minimum wage rates through ballot initiatives and legislatives actions in order to meet the need of their workers.
Washington State in the USA had the highest minimum wage. This was as compared to the 49 remaining states, in February 2008. The lowest minimum wage was in Kansas, but there was no enactment of minimum wage law in 5 states of the USA. These states used the Federal minimum wage.
The issue of minimum wage is an issue that has raised a lot of concern in the United States of America. While some people assert that it should remain, others seem to think that it should be abolished. In this research paper, the arguments supporting the abolishment of the minimum wage will be discussed.
Three issues that are affected by the minimum wage system are, its effects on workers, business & Economy. In this paper these three issues will be discussed broadly.
One major effect of minimum wage is that it affects businesses especially the small businesses. The businesses due to the low income of the workers experience reduction in the profit from the businesses. Businesses cannot get optimum gains from their businesses.
Minimum wage causes inflation in the market. The low income reduses workers spending power leading to decreased profits. These decreased profits in turn make businesses to raise the prices of goods in order to compensate for the decrease in profit. When the prices of goods go up, inflation comes into the market. This in turn will cause further increase in the costs of goods and services produced. This makes it impossible for the low-income earners to buy their basic needs and services, (Tupy et al, 2004). This condition affects the economy of the state. Therefore the least employable workers are affected, by making them unemployable. In effect this situation results to the pricing out of the least employable workers from the market.
The quality of goods is lowered by the minimum wage. This happens when establishments that are affected by the minimum wage, try to cut down the costs incurred. They result to laying people off and increase the prices of goods in order to cover costs. This makes it even more difficult for the people to meet their needs due to the skyrocketing prices. Minimum wage lowers the number of businesses that employ low-skill workers. The profit margins of business owners that employ minimum wage workers may reduce. This situation in turn encourages the business owners to establish businesses that do not employ minimum wage workers.
The minimum wage low increases underemployment. It has been observed that in a given state, the percentage of workers in the population who would be willing to work more and earn more, is much greater than the ones those who would want to work less and earn less. Due to this factor, the minimum wage system limits the number of people who would be employed if the system was not there, (Wilson et al, 1989). A minimum wage increase would help in preventing under employment. More workers will benefit by getting a better pay as well as boost the productivity of the workers.
In addition, the minimum wage is considered, to fail in improving the situation of those in poverty. As earlier stated, some of the supporters of the minimum wage say that it assures that all people have a means of acquiring their basic needs. Alternatively, those with higher salaries get it from the minimum wage workers productivity. The workers are offered a chance to work, but the efforts are not equally paid for in relation to their productivity to the economy. Instead, it undermines their right to be paid fairly for their work.
The minimum wage law is said not to target the needy. This is because the minimum wage limits the people financial ability, (Gray. J, 2007). Minimum wage puts a limitation to the freedom of the parties involved but more so the employee. According to the minimum wage laws, it is illegal to have employees earning less that the stated minimum wage (Williams et al, 1989). This denies workers a chance to provide either labour or services for a wage that is less than the minimum. For instance, the South African trade unions dominated by white majority advocated for the introduction of minimum law wages during the Apartheid era. The reason behind this was to exclude the black workers from the labor markets. This would make it impossible for the black workers to compete with their fellow white workers, (Williams et al 1989).
The Quantity that is demanded of workers is reduced by the minimum wage laws. The number of hours worked by individuals can be reduced. In addition to this, the number of jobs reduction reduce the quantity of work demanded of the workers (Tupy et al, 2004) Reduction in the quantity demanded of workers, may in turn decrease the productivity of that particular sector of the economy.
Employment is lowered by minimum wage by causing the price floors to rise above the equilibrium. Therefore, more people would be willing to offer their labour hiring. On the other hand, only few numbers of employers will be willing to hire workers. This causes unemployment due to a surplus of labour. Increased unemployment results to afford and lack of ability to earn enough to afford all the basic needs.
Education system is undermined by minimum law wages. The low-skilled jobs do not require high skills that are important in human capital. Education trains people to acquire knowledge and skills that are required in certain profession. Professionals that are available to work in various fields become reduced in number. This is because, instead of the people furthering the education, they settle for the low minimum jobs. This risk lack of professionals in the state, hence the human capital that should be employed is not there. This may cost the economy if it hires foreign expertise to work.
There is lowered competition as a result of minimum wage. This is because companies or firms that impose minimum wage raise the average variable cost. It also raises the cost of its competitors in the market. This gives the sector of firm an advantage over its competitors. The firm is able to successfully compete. It can compete well against the former lower- cost competitors. This reduces competition between a company that has high-wage employers and then imposes minimum wage, and the other former low-cost competitors, (Daniel. H, 2008). Firms that have high-wage employers use the minimum wage plan to reduce the competition they get from their other competitors.
Minimum wage system can be said to touch on three critical issues. These are: its effects on the workers (people) businesses and the economy. On the issue of the workers effects of minimum wage include; unemployment underemployment, it does not target the needy and it contributes to poverty.
Businesses also encounter problems and challenges as a result of the minimum wage. This includes; affects small businesses more than large businesses, lower competition, business spend less on training employees and limits the freedom of the employers and employees.
The economy is affected by inflation due to the high prices of goods; it decreases human capital by hindering further education and reduces quantity demanded of workers. Therefore should the minimum wage be abolished it would help the needy poor and those in small businesses to earn enough. This will improve the standards of living of the people.
Bob Fingerman, 1997: Minimum wage
Candace, 2006.The Disease Called Poverty.
Daniel H. 2008 Using the Minimum Wage to Beat the competition.
Tupy and Marian L. Minimum Interference. National Review online, May 14, 2004
Williams and Walter (1989) South Africa’s War against Capitalism. New York: Praeger
Wilson and Lilla.1989 “How About a minimum wage increase?” New York Times. 17- 11-1989