Running head: WHO REALLY BENEFITS FROM MINIMUM WAGE? WHO REALLY BENEFITS FROM MINIMUM WAGE? UNIT 8 PROJECT MICROECONOMICS SHERI STOVER PROFESSOR JAMES NOVEMBER 14, 2011 Minimum wage is to ensure workers can achieve a decent standard of living, then why does increasing minimum wage sometimes end up hurting the workers that need it the most? The minimum wage needs to provide incentive to work over being comfortable on the welfare system. The minimum wage has caused some major debates over its benefits and its faults.
Minimum Wage Usually when people first think of minimum wage their first thought is an entry level job that involves a constant hours of rigorous work. To other people they see it differently, and may look at the economic side of minimum wage and how it would affect others. Minimum wage can decide a lot about the economic flow of the U.S. or even the economic flow of other countries. There are benefits to minimum wage as well that would assist others in the U.S. to live in a suitable way. With these ideas I am going to analyze both sides to this argument on minimum wage and its impact on the businesses, the government, and most importantly the American people.
Take gasoline for examples as the price goes up people tend to drive less. These laws of supply and demand also affect business decisions; if wages go up employers will hire less people as this increase in average fixed cost would eat into their marginal revenue. Economists estimate that for every 10% increase in wages workforces are cut by 3% (Danzinger 2009) Minimum Wage Merrell
Many economists believe “that a rapid stock of the nation’s money causes inflation” (pg.169). The rate of inflation can affect borrowing power for a new business owner as, “the rate of inflation expected by the borrower and the lender will be influence by various interest rates” (pg. 169). When inflation is high, many lenders interest rate increase to compensate for the impact inflation has on their business and the decrease in purchasing power of money that has to be paid back in the future. Since, the FED set the interest rate in which the banks borrow from, Edgars’ ability to borrow enough money or establish a line of credit to start his business will be affected by inflation, interest rate and financial policies.
Alternatively, the Government could introduce a free market supply side policy such as reducing the power of trades unions. If unions are powerful, productivity may be lower due to frequent strikes and disruptive working practises such as working to rule. If union power is reduced it helps reduce time lost to strikes, increases labour market flexibility and therefore should help increase UK exports. A third supply side policy could be increasing labour mobility. The nature of the UK housing market means that it is often difficult for workers to move to areas where jobs are available.
How about making great increases on taxes for the rich? Wouldn’t that reduce the income from their industries and businesses as well as making it hard for them to maintain all their employees? It’s interesting how the big earners are portrayed as being extravagant, spending on luxurious goods while the middle class who have foreclosures and bankruptcy are only portrayed as caring about their children to go to good schools. Oh! How
Financial Services Department 12 January 2014 Raising Minimum Wage and Its Impact on the Economy Raising the minimum wage has been heavily discussed by the federal government, from President Obama's call to raise the minimum wage to The Fair Minimum Wage Act of 2013. So as raising the minimum wage gains more coverage, several economists and small business owners have argued that overall, raising the minimum wage will have a large negative effect. However with further research, raising the minimum wage actually has a positive effect on the economy, more specifically, on small businesses, unemployment, demographics, and the price level of consumer goods. With the idea of raising the minimum wage, a large focus has been placed small businesses.
Scarce labor for skilled jobs tends to push up wages, coupled with the fact that skilled workers will revert to laboring jobs unless they are paid extra for the use of their skill. Secondly, the government and the trade unions have a hand in rate-fixing, as well as the employer. If the cost of living rises, the unions will call a strike for more pay, and they will always, in a free economy, press for not only a realistic wage level, but also a share in the profits of the firm, which are otherwise paid to the government in the form of taxation, to the shareholders as dividends, or reinvested back into the firm for development. The fact that in many countries, women are paid a lower rate for doing the same job merely indicates that, on the whole, most women are not union minded. They are relatively unorganized, because most of them are not the primary bread winner.
But others argue that the federal minimum wage adds to an increased unemployment rate among younger people and unskilled workers. Minimum wage work is often referred to as “skilled labor” and includes the completion of unwanted, minuscule tasks. Examples of jobs with
If such conflict arises, the higher minimum wage—state or federal—is the minimum wage for workers in that state. Proponents of raising the wage argue that workers should have more spending power than they currently do. This can then help to stimulate the economy by increasing consumption among those minimum wage workers. The idea, however, that a raise in the minimum wage helps the poor is actually a misconception. Raising the minimum wage is a very ineffective and indirect aid to the poor that often does more harm than good.