Germany Rising Wages (Essay Sample)

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Germany Rising Wages
The major goal of every economy is to achieve economic growth. The government is, therefore, responsible of employing measures that can take the economy to a higher level of growth. However, before making decisions on which strategy to be employed, economists have to consider both side effects of the strategy before the actual implementation takes place. Surprisingly is that, even the already developed countries still struggle to take their economy to a higher level of growth. Economic growth is pursued through four major economic goals which are; reducing unemployment, reducing inflation, enhancing stability of prices and ensuring a balance of payment equilibrium. Germany which is among the developed countries in the world is aiming at increasing its minimum wage (BÄ¿ACKSTONE, Pg. 2). This paper, therefore, contains an analysis of this condition and how it will affect the economy.
Germany is known to be an export driven economy. Its growth is mainly determined by the level of exports than its domestic demand. This means that the level of the country’s exports is more than the imports which contributes to a surplus balance of payment contributing to economic growth. In the previous years, Germany has been among those countries without a minimum wage specification. However, the government is now intending to increase the minimum wage with an expectation that this strategy will increase the people’s income levels and so increase their demand for goods and services in the economy contributing to a higher economic growth (Knabe & Ronnie, Pg. 412). It is true that the increase in money supply through the increased wage rate will increase the demand for goods and services in the economy which is among the contributions of economic growth. The increased demand for goods and services is also likely to negatively affect the economy and this imposes a weakness on the increased minimum wage approach.
It is argued that the increase in minimum wage will help in solving the high rate of unemployment problem. Despite that Germany is among the most developed countries in the world, some people still stay without any form of employment. However, the large proportion of the unemployment people are those that leave jobs because of low wages and seek for better jobs where they can receive better compensation (BÄ¿ACKSTONE, Pg. 3). Due to the more employment opportunities in the country, labors are too selective with higher bargaining powers and so they prefer staying without jobs hoping for better ones which increase the number of unemployed in the country.
However, increasing the minimum wage is not a solution for this problem. In fact, the increased minimum wage rate can worsen the condition. If the minimum wage is increased in the country, the price of labor will be too high. Remembering that the objective of every firm or employer is to maximize profit, employers will be forced to reduce the number of employees so as to cut the total expenditure. As a result, productivity in those firms will also reduce (BÄ¿ACKSTONE, Pg. 4). The reduction in number of workers and productivity in firms will increase the rate of unemployment in the long-run hence making the condition worse than it is presently.
Once minimum wage is increased, the people’s levels of income will definitely increase. Basing on the consumer theory where the major aim of a consumer is to maximize utility, these individuals will increase their demand for goods and services. As a result, the aggregate demand will be higher than the aggregate supply in the economy. In order to meet the available demand, suppliers will be forced to increase their prices (Knabe & Ronnie, Pg. 403). The general increase in price levels will lead to an increase in the rate of inflation which is an obstacle to economic growth.
Another economic objective is to enhance a balance of payment equilibrium. Balance of payment surplus is among the current contributes of German’s economic growth. However, with the increased minimum wage which translates to an increase in income levels among the individuals hence excess demand, these people will be forced to co...