The Minimum Wage Effects (Essay Sample)

The Minimum Wage Effects Author Affiliation Course Instructor Due Date 1 How a Higher Minimum Wage Will Harm Businesses The effects of a higher minimum wage have been a controversial topic not just in the United States but in many parts of the world, with the opponents citing that it will reduce business profitability through high operational costs while the proponents argue that a higher minimum wage will lead to more revenue since workers attain higher purchase power for the firms' goods. According to (Harasztosi & Lindner, 2019), the rise in the minimum wage is likely to increase firms' labor costs, including salaries and benefits, which eat into the firm's revenue. Such reduces the profitability of businesses forcing them to reduce the size of their workforce while others may quit the market altogether. This is especially true for small businesses whose operational costs take most of the business revenue. However, as the article explains, businesses pass 75% of the effects of the minimum wage to consumers through increased prices of goods and services, while business owners bore the remaining 25% through slightly lower revenue. 2 How a Higher Minimum Wage Will Harm Workers Workers are at the center of the minimum wage issue as increased salaries and benefits increase their income, purchasing power, and lifestyles. However, research shows that a higher minimum wage is likely to reduce employment opportunities for workers as employers strive to cut operational costs. As (Jardim et al., 2017) highlight in their study on Seattle, a higher than optimal minimum wage (above $13 per hour) will reduce the minimum working hours for less-skilled workers by at least 3 million hours and loss of over 5000 jobs quarterly. This is likely to neutralize the benefits of the wage to the workers because the loss of income and increased prices of goods and services are higher than the estimated benefits of higher wages for the workers. 3 How a Higher Minimum Wage will Help Businesses While a higher minimum wage policy may imply higher operating costs for businesses, it can also lead to an overall increase in employee productivity hence higher profits. The Efficiency Wage Theory (EWT) suggests that when employees are paid higher salaries and benefits, they are motivated, loyal, have low turnover, and are more productive (Hanim Rusly et al., 2017). This implies that businesses produce more, sell more, and earn more by raising their wages. Also, a higher minimum wage acts as a stimulant for smaller or low-performing firms to up their game through innovation and creativity to keep up with rising operating costs. To this end, businesses train, motivate employees, and increase their productivity leading to higher revenue. Finally, a higher minimum wage translates to higher purchasing power for workers who buy more goods and services from the businesses. Thus, way there is more demand for goods and services followed by higher prices and, consequently, higher profits 4 . How a Higher Minimum Wage will Help Workers A higher minimum wage implies that workers will get higher salaries and benefits and hence more money at their disposable. For instance, in Seattle's case, the rise in the minimum wage from $9.5 to $13 per hour meant that workers received an extra $2.5 per hour, increasing their income and improving their lifestyles. Notably higher minimum wage is likely to reduce the number of workers living below the poverty line as they will be able to afford goods and services. The spillover effects of a higher minimum wage will stimulate economic growth, ensuring healthy competition, a variety of quality goods, and relatively lower prices. At the same time, it will provide more employment opportunities and favorable terms of employment as companies expand and innovate to meet operations costs. 5 Should we raise the minimum wage, and what should be the minimum wage? Ra...