4 pages/≈1100 words
The Impacts of Rising Minimum Wage on Economic Growth and Development (Essay Sample)
A Rise in the Minimum Wage
Currently, increasing the minimum wage is the central piece of the progressive economic agenda. The minimum wage debate attracts diverse views from various groups of people. Some claims that increasing minimum wage boosts economic growth and employment level and thus it is a necessity towards improving the living standards of the low-income earners. On their part, antagonists argue that raising minimum wage tend to hurt the people it anticipates to help rather than improving their living standards. The opinion of the economics profession on the impact of the minimum wage continues to shift with time. Today, the most rigorous research portrays little evidence of job reductions from a higher minimum wage. According to 2013 survey piloted by the University of Chicagoâ€™s Booth School of Business, economists agree by an approximately 4 to 1 margin that the benefits of increasing and indexing the minimum wage outweigh the associated costs (Neumark and William 45). In my opinion, I strongly believe that increasing minimum wage has more benefits than its associated disadvantages and thus I advocates for a rise in the minimum wage rate.
Firstly, raising a minimum wage enhances economic growth leading to creation of more job opportunities. The minimum wage boosts consumer spending, generating higher sales revenue for local businesses, and thus promoting economic growth. The increased consumersâ€™ spending also increases products demand, forcing the firms to increase their production. In an effort to increase their productivity, the firms hire more workers increasing employment level. A group of economists at Goldman Sachs conducted a simple evaluation on the impact of minimum wage rise in 13 states in United States that had increased their minimum wage in the year 2014 (U.S. Department of Labor n p). Some states such as New Jersey, New York, Connecticut, and Rhode Island increased their minimum wage immediately at the beginning of the year while the remaining 9 states increased their minimum wage in line with inflation. The economists found that the states that had raised their minimum wage had a faster employment growth than the states in which the minimum wage remained at its 2013 level. Actually, other research bodies such as BLS revealed similar results in their researches in the same states. Without a doubt, these results show that arise in the minimum wage leads to a growth in the employment level.
Further, an upsurge in minimum wage reduces wage inequality. A considerable wage gap raises serious disquiets about the fairness in a society since even people working full-time find themselves having challenges in making ends meet. Falk and Ernst (69)argue that with proper enforcement of the minimum wage, it reduces the extent of inequality among different employees despite its weak effects on poverty reduction. Falk and Ernstadd that minimum wage is a useful tool for moving towards a more just and equal society. In this regard, for minimum wages to reduce the inequality, firms must comply with the law and ensure there is no wage below the minimum. Statistics from the 2014 Labor Survey depicts that a reduction in inequality at the low end of the wage distribution in the Atlantic Provinces since 2005 arises from a $3 rise in the minimum wages in those provinces over the time (U.S. Department of Labor n p). Indeed, if reducing wage inequality is a goal then the minimum wage works to achieve it.
Importantly, high minimum wages increases peopleâ€™s savings and reduce employee turnover in the firms. The savings helps in offsetting the costs to employers owing to a minimum wage rise. The firms can borrow the increased savings to expand their businesses. On the other hand, a high pay enhances workersâ€™ job satisfaction and motivate them to increase their productivity. According to Immervoll (67) firms that pay a higher wage than their competitors do; experience a low rate of employeesâ€™ turnover. Immervoll gives an example of the Trader Joe firm that offers a starting wage ranging between $40000 and $60000 per year, which is more than twice what the majority of its rivals offer. Actually, the sales per square foot at Trader Joe are three times higher than the average United States supermarket.
However, there have been various counterarguments on raising the minimum wages. Firstly, increasing the minimum wage seems like a tool to raise low-income workers out of poverty, but inevitably hurts the very individual policymakers it intend to help. When the government imposes a higher minimum wage, employers face higher labor costs that force them to respond by decreasing other production expenses (Ragacs 121). As the employers cope with the increased costs of the mandated wage rise, they often respond by cutting the jobs opportunities available to less-educated and less-experienced employees. Nonetheless, in the past few decades there have been important developments in the academic literature on the effect of the increasing the minimum wage on employment. Indeed, the evidence from various literatures indicate that rises in the minimum wage have little or no adverse effect on the employment of the minimum-wage workers, even during times of the weakness in the labor environment. In fact, scholars suggest that a minimum wage increase could lead to a positive stimulative effect on the economy since the low-wage workers spend their additional earnings thus raising demand and overall firmsâ€™ productivity.
Additionally, critics often dismiss the minimum wage as a useful tool for poverty reduction because the past increases have not led to a reduction in the poverty rate. Apparently, this has been the case since the minimum wage has been set so far below the poverty line that past increases have not been significant enough to lift full-time workers out of poverty. For instance, at a rate of $ 10.45 per hour, a person working full-time, a year at Metro Vancouver remains $ 5,441 below the poverty line (Ragacs 123). Notably, the figure is fo...
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