Minimum Wage Debates Economic Arguments on the two sides
Minimum Wage Debates Economic Arguments on the two sides.
The debate on the minimum wage is one of the most controversial economic policy debates in the contemporary politics. The economic theory, social justice, and business realities are encompassed by demands of fast-food workers, who need to earn $15 an hour, and the threat of small-business owners to close, who must argue the issue. To get to know each side, one has to consider fundamental economic principles, facts and actual trade-offs that policymakers have to make.
The argument in support of increasing minimum wage.
Advocates have a number of points to make. First, the increase in wage boosts the purchasing power of the workers. The current federal minimum wage is at 7.25 an hour since 2009 and it is losing value to inflation. The additional salaries are directly transferred to the pockets of the workers, increasing the amount of local expenditure and the economy.
Second, the efficiency-wage theory is that an increase in wage can increase productivity. Whenever employees are able to satisfy their fundamental needs without the need to balance work, they work more concentration-free, stress free and remain committed to their organizations. Reduced turnover will save business the costs of recruitment and training, compensating increased wages. Firms that are already paying far above the minimum minimum wage (like Costco) tend to give justification in their turnover and increased productivity.
Third, the rise in minimum wages can reduce income inequality. Profits and pay of executives of corporations have increased, and salaries of low-income earners have not been increasing. An increase in wage floor ensures that the economic growth will not just enrich the highest rung, and it will decrease the use of social welfare which in effect subsidizes low wages.
Fourth, the power of employer monopoly in certain markets is mentioned by many economists. When the hiring is controlled by few companies they can drive the wages below competitive level. This market failure can be addressed by a well-designed minimum wage that will bring wages to a more realistic level relative to the level that would be achieved in a competitive market without mass layoffs.
The Argument against Minimal Wage Increases.
Concerns about the economy are real, and opponents are concerned with distortion of the labor-market in particular. The classical theory of supply and demand indicates that the cost of labor decreases the demand. Companies with increased wages can reduce staffing, workload, automate or close.
This is a pressure that the small businesses experience. A thin margin family-owned restaurant might not be able to absorb a 50 percent wage increase without increasing prices or laying off employees. The aim of the policy is to benefit workers, but may actually be detrimental to the individuals being assisted especially the youthful or the low-skilled workers who need to work at low levels in order to gain experience.
Another problem is the substitution effect. With the increasing wages, employers substitute labor with capital. Self-checkout kiosk, robots in the kitchen, automated ordering becomes cost effective. This change can be intensified by rapid wage increases and jobs will be lost before workers can acquire new skills.
Minimum-wage regulations on a national or statewide basis are complicated by regional variations in the costs. The implication of a $15 an hour wage is different in rural Mississippi and San Francisco. Standardized policies may overload the low-cost regions and fail in the high-cost cities. Making things locally may be more effective than a universal response.
Other economists consider the earned-income tax credit (EITC) to be an alternative that is even better. Instead of compelling employers to increase wages, the EITC augments low incomes with the tax structure, which is financed by a wider tax base. This approach does not create distortions in the labor-market, but it helps to assist low-income employees, but at the cost of fiscal strain on government expenditures.
Finding Common Ground
Constructive policy discussions are not a mere yes or no position. Moderate, inflation- and productivity-indexed wage growths that are not shocking labor markets are supported by an increasing number of economists. Differentiated wages are proposed by others, such as lower wages given to teens in training, or locally differentiated wages depending on cost of living.
The evidence is still biased and very situational. The 1994 research of card and Krueger on New Jersey fast-food restaurants revealed that little employment effect of significant wage increases was realized. Greater gains, however, have been attributed to a more apparent loss of jobs. The new consensus is that small increases are probably characterized by small, undesirable impacts whereas higher increases involve higher risks.
After all, the debate on minimum wages represents a more profound debate about the values related to work, and the distributions of prosperity, and efficiency and equity in societies. Both extreme laissez-faire and extreme intervention do not fully describe the modern labor market environment. A successful policy should be based on a subtle and evidence-based methodology that combines legislation of the labor market with voluntary solutions like training programs, tax credits, and regional accommodations.
Even with the changing nature of the debate, it is evident that the common aim is to have an economy where work becomes dignified, secure, and opportunity based. The way to that end, however, will still entail sound and lawful economic dispute.
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