The subject of raising the minimum wage is very emotional and often attracts confrontational debate between those who oppose the idea and those who support it. The proponents of raising the minimum wage argue that it would pull more people above the poverty line, increase the morale of employees, and catalyze higher spending in the economy. However, the opponents of increasing the minimum wage argue that it could lead to increased prices of commodities, unemployment, and lower the urge for advancement in different careers (Gitis par. 5). Therefore, it is important to review the pros and cons of raising the minimum wage in order to establish its general effects on the economy.
This treatise will explore different arguments that support and oppose an increase in the minimum wage. In addition, the treatise will present a personal stand on the topic based on the comparative analysis of the pros and cons of increasing minimum wage.
Improved living standards
When the minimum wage is increased, millions of employees will stand to gain from increased salaries that would be significant in meeting the living expenses and other basic needs. For instance in the US alone, more than 16 million workers will have more income to meet their daily expenses and service different basic needs that are not sufficiently met by their current salary. Therefore, “raising the minimum wage to $10.10 would reduce poverty and increase the quality of life of 30 million Americans” (Kim par. 9). The increased remuneration as a result of the raised minimum wage would lift more than half of this population above the poverty line.
In fact, “more workers being able to pay for their basic expenses is a good thing, as it may lead to less reliance on government- and state-sponsored financial-aid programs” (Williams par. 5). In addition, the various funds used by the state to support this group could be channeled to other important sectors such as health and education as opposed to handouts. The multiplier effect of redistributing the resources to other sectors would be massive, in terms of the general benefits and wellbeing of the society (McConnell and Macpherson 22).
Higher employee morale
Irrespective of the job environment, an increase in the salary has a high impact on the level of employee motivation, whether perceived or real. Basically, any growth in the pay received by the employees will improve the level of employee morale in performing their duties. In the general business environment, it is very difficult for employers to persuade lowly paid employees to perform optimally due to low motivation. In fact, any motivational strategy in a business environment where wages are within the current minimum wage is bound to fail since the employees may not be able to meet their basic needs or comfort (McConnell and Macpherson 19).
Besides, it is almost next to impossible to retain a good number of employees when the wages are lower or within the minimum wage since the low pay becomes a push factor. Talented and experienced employees may not stick around in a work environment where the pay is not proportional to the service given. However, a rise in the minimum wage is likely to improve the level of employee morale in delivering their best in a work environment. In the end, the boost in the minimum wage would translate into improved productivity and more returns to the employer. Besides, increasing the minimum wage has the potential of improving employee retention. Therefore, raising the minimum wage has the potential of boosting “worker productivity, increase employee retention and increase employee morale and loyalty, reducing new-employee training costs and improving business efficiency” (Kim par. 7).
The uptick in consumer spending
Since increasing the minimum wage translates into more money an employee receives, the disposable income of the employee’s household will increase as he or she will have more money to spend. The extra money “could trickle down to retailers and provide a boost to the economy” (Williams par. 7). The increase in the disposable income for more than ten million employees who benefit from increased minimum wage may stimulate the economy as more money will be circulating in the economy. The beneficiaries of the increased spending range from schools, hospitals, malls, and entertainment establishments among others.
As minimum wage increases, “a family’s purchasing power increases for both lower- and middle-income families. As they’re able to spend more, businesses benefit, as demand for goods increases. As the demand for goods increases, additional employees will be hired” (Kim par. 6). This means that increasing the minimum wage will benefit employees and everyone else that offers services that might be purchased by the salary of the workers.
The increased incentive for accepting job offer/job growth
The primary incentive for accepting any job is the remuneration package that an employee is likely to get. When the minimum wage is very low, many people will shy away from taking jobs considered to be poorly paying. Besides, very few employees would be willing to stick to a job that has low pay for a long time, irrespective of the career advancement opportunities that might be available. On the other hand, increasing the minimum wage would make jobs more attractive due to increased remuneration that an employee is likely to get. For instance, in a grocery store, a potential employee would weigh options when signing an employment contract, depending on the expected pay.
However, when the salary is increased, the employee would be more than willing to accept the job because of the increment in the wage. The same argument may apply in career advancement in the work environment with low minimum wage and high minimum wage (McConnell and Macpherson 21). Many employees would shy away from accepting career development opportunities in the work environment with low pay than in a similar work environment that has a higher remuneration reward. This means that increasing the minimum wage would translate into increased incentives for accepting jobs and career advancement.
Respect to the humanity and dignity
A minimum wage that cannot sustain the employee is similar to slavery. Slavery as a mode of production has remained a favorite in companies that function in markets that attract immigrant workers and vulnerable people. These companies thrive on discrimination and exploitation of labor supply to satisfy their selfishness. Since they are the masters of labor production tools such as wages, this group continuously disrespects the rights of the laborers (McConnell and Macpherson 27).
For instance, the labor strategies are characterized by exploitation and depression of labor to ensure that hybrid slavery with bare minimal remuneration supports massive profit-making at the least possible cost of production. For instance, within the giant online shipping warehouses, it is common for employees to work continuously for more than ten hours without taking a break (Arjoon 34). Increasing the minimum wage would be equal to respect for the dignity of the employees since the rise in salary would at least guarantee meeting the basic needs after offering labor services. By increasing the minimum wage, employees would be in a position to feel appreciated for the hard work and would try to give their best to such businesses (McConnell and Macpherson 23). In the end, the aspects of efficiency, reduced turnover, and sustainable business activities will be assured.
Reduced illegal activities
Low minimum wage discourages many people from joining the employment market since the pay may not sustain expenses for servicing basic needs. The increasing inflation has made the cost of living higher than the minimum wage as basic commodities are becoming more and more expensive against constant salary. As an alternative to offering legal labor services in the employment market to earn a salary, many people have resorted to illegal activities such as drug trafficking, stealing, prostitution, and conning at the macro level. These activities have made society unsafe, unpredictable, and unsound for sustainable business.
However, the increasing minimum wage would make the labor market attractive to people who “wish to join the workforce rather than pursuing money through illegal means” (McConnell and Macpherson 26). In the end, cases of insecurity and engagement in other illegal ventures will be reduced substantially as an indicator of a better society.
Why raising the minimum wage is a bad idea
Despite the myriad of benefits associated with increasing minimum wage in the labor market, several arguments highlighting its demerits have been presented. The opponents of increasing the minimum wage argue that it could lead to increased prices of commodities and unemployment. For instance, through increased minimum wage, the cost of labor will increase. In order to protect the employer from the effects of the increased cost of labor, the variance is passed down to consumers as increased commodity prices. This means that any rise in the minimum wage would leave the consumers in a worse position than before the increment (McConnell and Macpherson 22).
Through secondary research, Gitis (2013) established that there is an interesting relationship between an increase in the minimum wage and the rate of unemployment. In the research that involved establishing the impacts of increasing minimum wage to $7.5 per hour in the year 2013 by 19 states, the researcher noted that the minimum wage policy resulted in increased rates of unemployment recorded.
Gitis (2013) observed that “a $1 increase in the minimum wage was associated with a 1.48 percentage point increase in the unemployment rate, a 0.18 percentage point decrease in the net job growth rate, a 4.67 percentage point increase in the teenage unemployment rate, and a 4.01 percentage point decrease in the teenage net job growth rate” (par 6). The findings of the research by Gitis (2013) suggests that the increase in the minimum wage to $7.5 pay-per-hour by several states in the US was negative to the US labor market since it elevated unemployment rates and the actual number of persons who were unemployed (McEachern 32).
As a result of the increasing minimum wage, organizations have to respond by increasing the salaries in line with the new minimum wage. However, the increasing minimum wage translates into increased cost of labor in companies that have the primary goal of optimal returns from the least possible costs (Gitis par. 8).
In response to the increasing minimum wage, a rational agent managing the labor function in a company will have to strike a balance between the laborers and capital to minimize the effects of increasing wages. One of the possible responses to high wages would be streamlining the labor force by retrenchment to remain with lean labor as one of the primary factors of production (McConnell and Macpherson 24). From this perspective, it is apparent that the minimum wage increment would negatively affect the unemployment rate as companies respond to the dynamics of the increased cost of labor.
The federal government should be proactive in defining the minimum wage level, acceptable working conditions, and employee compensation packages within a level that guarantees the employee the ability to service their expenses and basic needs. From the research, it is apparent that there are several benefits of increasing minimum wage at the macro and micro levels of the economy. The primary advantages of the increased minimum wage are the betterment of the standards of living as the beneficiaries would have extra disposable income that might be used to serve different basic needs and other expenditures. Besides, increment in the minimum wage would boost the morale of employees.
The demerits of increasing the minimum include increased unemployment due to a rise in the cost of labor. The employer may respond to the rise in the cost of labor by retrenching or trimming the labor force to a sustainable level. However, the merits of increasing the minimum wage outweigh its demerits.
Arjoon, Surendra. Corporate Governance: An Ethical Perspective, Trinidad: University of the West Indies. 2009. Print.
Gitis, Ben. How Minimum Wage Increased Unemployment and Reduced Job Creation in 2013. 2013. Web.
Kim, Daniel. Minimum-Wage Increase Would Benefit Many. 2014. Web.
McConnell, Campbell and David Macpherson. Contemporary Labor Economics. London, UK: McGraw-Hill Education, 2013. Print.
McEachern, William. Economics: A Contemporary Introduction. Alabama, Al: Cengage Learning, 2011. Print.
Williams, Sean. 3 Pros and Cons of Raising the Federal Minimum Wage: Where Do You Stand?. 2015. Web.