Raise in US Minimum Wage: Impact on Workers? - Essay Sample

Introduction

The minimum wage of the United States has been a topic that is largely discussed since it was established in 1938, with the Fair Labor Standards Act (O'Connor, 2014). An increase in the minimum wage is important so as to maintain its purchasing power, hence, check inflation. There has been a recent movement to increase the minimum wage to 15 dollars per hour, which will benefit around 39.7 million workers (Gopalan, Hamilton, Kalda & Sovich, 2017). This paper discusses the effect this will have on the United States economy, including both positive and negative impacts.

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Raising the minimum wage by 15 per hour has a high probability of raising the current economic activity hence spur the job growth rate (Obradovic, 2018). If the united states institute of economic policy raises the current 7.35% to 15% this would imply that more than $32.5 billion will be injected into the economy net. Due to this, more than 105,000 new jobs are created in a five years phase. The Chicago reserve bank economists predicted that 1.75 raise in the minimum wage would positively aggregate the household expenditure by about $48 billion annually (Acs, et al., 2014). Increase the minimum wage by $15 would simply imply that the GDP will be boosted which result in an increase in job growth rate.

Government welfare spending would also be reduced by increasing the minimum by 15 dollars per hour. This due to the fact that if all the low- income employed earned more money, their dependence on, and also the eligibility to the government benefits, would gradually reduce (Obradovic, 2018). According to the center of American progress study, a reduction in the minimum wage progressively reduces the government spending on the Supplemental Nutrition Assistance Program (SNAP) by about 10%. Hence, people will not have to depend on government assistance (Acs, et al., 2014). The report indicated that this would save the government 13.6 percent of the government spending on the support programs.

Poverty will be reduced if the minimum waged is increased. Any individual who works full-time with 7.25 dollars per hour is entitled to earn 14,990 dollars annually. This figure is more than the federal level of poverty of 12,351 of any person's household who is below 65 years of age. Increase the minimum wage to $15 will lift people poverty level (Obradovic, 2018). According to a report by the congressional budget office, it was concluded that an increase in the minimum wage to about 9 dollars an hour would benefit more than 300,000 people. Increasing the minimum wage to 15 dollars would, therefore, benefit more low-wage workers (Acs, et al., 2014). This also accounts to the long-time effect.

Increasing the minimum wage by 15 per would hour reduce the overall income inequality. The United States is considered to have the highest level of income inequality compared to the other members of the Organization for The Economic Cooperation and Development (OECD) (Acs, et al., 2014). There has been a wide gap that developed in the 1920s and it is reported that in 2012 the richest 5% of the United States population earn a total of 22.23 of the county pre-tax income (Obradovic, 2018). The decrease of inflation resulted in the adjustment of the minimum wage value which is among the main causes of the existing wide gap and the high level of inequality. Hence, an increase in the minimum to 15 dollars would help reduce income inequality.

Although raising the minimum wage has positive impacts on the economy and its citizens, it also has adverse effects. The negative effects are more associated with the economy than on the comfort of families and individuals relying on the minimum wage. These effects include an increase in unemployment and inflation, an increase in the use of automated systems rather than works and competition in the job market.

An increase in the minimum wage indirectly affects the unemployment rate of an economy (Lopez-Villavicencio & Silva, 2011). It increases the cost of hiring workers, which in turn increases the cost of production by firms and businesses. As a result, the businesses and firms find ways to address this such as reducing the numbers of hired workers and hiring more efficient and experienced employees. This is compliant with the economic theory of supply and demand, showing that with an increase in wages, there are fewer employees willing to hire more workers even as more workers are willing to work for the same wage (Bell & Machin, 2018). The employers are also drawn to increase process automation in their companies since the opportunity cost of the employer for innovation in the company. An increase in the minimum wage also encourages individuals who previously had no incentive to work, such as retired individuals, stay at home parents and college students to enter the workforce. These individuals are most likely to be qualified than the current low-wage workers and may replace them in their jobs. All these factors would result in an increase in the unemployment rate in the economy.

The increase in the minimum wage also has a significant effect on inflation rates of an economy (Glover, 2018). One of the reasons is the increase in product prices due to the increase in business costs such as production costs and hiring costs. This increase in prices leads to wage-pull inflation. There would also be demand-pull inflation due to higher spending by workers. As the workers earn more, the more they are likely to spend more money on good and services. An increase in inflation rates leads to a reduction in the value of money, which would hurt the United States Economy.

Conclusion

In conclusion, increasing the minimum wage to 15 dollars an hour will greatly benefit the economy in the aspect of reducing the poverty level, reducing the government spending in support programs, reduce the income inequality and hence increase the employment. However, it also has strong negative effects on the economy. Individuals could lose their jobs and the purchasing power of the American dollar may decrease. All these effects need to be considered when implementing an increase in the minimum wage.

References

Acs, G., Wheaton, L., Enchautegui, M., & Nichols, A. (2014). Understanding the implications of raising the minimum wage in the District of Columbia. Washington, DC: Urban Institute. http://www. urban. org/publications/413200. HTML.

Bell, B., & Machin, S. (2018). Minimum Wages and Firm Value. Journal Of Labor Economics, 36(1), 159-195. doi: 10.1086/693870 https://econpapers.repec.org/RePEc:ucp:jlabec:doi:10.1086/693870

Glover, A. (2018). Aggregate effects of minimum wage regulation at the zero-lower bound. Journal of Monetary Economics. doi: 10.1016/j.jmoneco.2018.11.001 https://app.dimensions.ai/details/publication/pub.1110271109?and_facet_journal=jour.1042200

Gopalan, R., Hamilton, B., Kalda, A., & Sovich, D. (2017). State Minimum Wage Changes and Employment: Evidence from 2 Million Hourly Wage Workers. SSRN Electronic Journal. doi: 10.2139/ssrn.2963083 https://economics.wustl.edu/events/2694

Lopez-Villavicencio, A., & Silva, J. (2011). EMPLOYMENT PROTECTION AND THE NON-LINEAR RELATIONSHIP BETWEEN THE WAGE-PRODUCTIVITY GAP AND UNEMPLOYMENT. Scottish Journal of Political Economy, 58(2), 200-220. doi: 10.1111/j.1467-9485.2011.00543. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-9485.2011.00543.x

Obradovic, S. (2018). The Differential Impact of Minimum Wages Increases on Nonprofit vs. For-profit Organizations (Doctoral dissertation, California State University, Northridge). http://scholarworks.csun.edu/handle/10211.3/205845

O'Connor, D. (2014). Deciphering Economics: Timely Topics Explained (p. 116). ABC-CLIO. https://www.abc-clio.com/ABC-CLIOCorporate/product.aspx?pc=A3931C