Discussing arguments in favour and against minimising wage. Just like any other commodity market, the labour market consists of the interaction of the demand side (employers/job creators) and the supply side (employees/job seekers).
The interaction settles at a market wage rate that both sides of the labour market agree to work with i. e. the equilibrium wage.
There are times that the government or an intervening regulatory party assess that the agreed upon wage rate is too low for workers to earn and sets up a regulation/law to quote the market wage rate to be above the agreed upon market equilibrium wage rate that all market players must abide to. This increase in wage rate is known as minimum wage rate. In a perfect competitive market, the equilibrium wage (W*) attracts equilibrium quantity of workers (L*).
An imposition of minimum wages will increase the market wage from W* to Wmin.
This increase in market wages will attract more quantity of labour (LS) but will also reduce the labour demand to (LD).
There will now exist an unemployed labour force of (LS LD) consisting of a layoff (L*LD) and a surplus in job seekers (L*LS).
The Research paper on Labour Market Context
Chapter Objectives • To define internal and external labour markets • To outline the role of HRM as the interface between an organisation and its labour markets • To identify the changing labour market conditions under which contemporary organisations operate • To critically evaluate the implications for HRM of the ‘knowledge economy’ • To outline how labour market trends are impacting upon how ...
The basis of minimum wage is that it improves the standard of living of workers who were earning low wages set by market forces. This is one of the advantages of minimum wage. The increase of the workers’ real wages increases their disposable income improving their economical/financial capability.
Minimum wage regulation is also good for labourers that are unable to form labour unions or confront their employers for an increase in their wages due to the nature and competitiveness of their jobs. It also helps those employers that would wish to increase their employees’ salary but are unable because it will make their businesses uncompetitive with others in that market and could lead to them closing down or losing market share. The interventionist role that the regulation plays develops the market in ways that the individual players could not.
Another major benefit of minimum wage in an economy is that it reduces the income inequality gap by redistributing income. The resource owners are the employers in the economy while majority of the “have-nots” are the employees, therefore minimum wage reduces the profit that resource owners make and redistributes that amount to the workers. Minimum wage is also a double edged macroeconomic tool because not only does it increase the wages of workers but also increases spending in the economy.
The spending boost in the economy is brought by the tendency of low wage workers to spend all of the money rather than save it as richer people do. Low wage earners are net consumers. The increase in spending in the economy due to the shift of resources to the low income earners will lead to an increase in demand of products. This is read by producers and investors asan opportunity to make profits. Increased production and investments will lead to a surge in demand of labour. Thus, minimum wage indirectly increases the demand of labour.
Poverty reduction is also another plus for minimum wage regulation. Poverty exists also among the employed labour force and also when workers, who are mostly depended upon, earn more they provide their dependants, along with themselves, with better living conditions. When the poverty levels reduce and people improve their living standards, the government benefits by a reduction in social welfare programs and can channel such expenditures to better and more productive uses. It also boosts the morale of workers because the increase in real wages act as an incentive.
The Term Paper on Living Wage Initiative Minimum Workers Set
The living wage initiative is a movement to pull the many families living at the poverty line, due to the underdeveloped minimum wage, into an income bracket that will allow them to provide basic needs for themselves. In order to completely understand the fuel behind the living wage initiative movement, the insufficiency of the current minimum wage, the people that would be benefiting from the ...
The motivation behind a better pay encourages the workers to increase their productivity and improve their service delivery which is likely to increase their employers output leading to higher profits or quality products. Minimum wage also helps generating revenue for the government through taxes. This is so because taxes are a function of income and as income increases so does amount of tax.There has been critics of this macroeconomic tool mostly by neo-classical economists and the major criticism is its drawback effect of increasing the unemployment rate in an economy.
This is so because businesses are not charities and they only exist or create jobs if the total revenue created by workers will exceed the total costs of employing the said workers. In the event of an increase or introduction of minimum wage in an economy, the cost of production increases and producers in that economy either shift their modes of production or flee the markets leading to layoffs and inability to create jobs. It also encourages a shift from labour intensive to a capital intensive modes of production which further presses the labour force in the economy.
Another drawback effect of minimum wage is that it disadvantages the unskilled labour force which ironically are the majority of the poorly remunerated workers that it parades to be helping. The unskilled/untrained workers provide a low quality labour that its real cost/worth is either at the equilibrium rate or below, in a minimum wage situation the employers would either layoff the unskilled worker for a more skilled worker because the quality is worth the cost. It limits the freedom of contract in a market, especially in a free market that heavily relies on its non-interventionist canons.
If a job seeker finds an employer that is willing to employ him at a wage rate that he agrees with (below the minimum wage) but cannot secure that job because of the minimum wage regulation then the government will have infringed the employer’s and the job seeker’s freedom to contract. Minimum wage increases poverty levels through increased prices of products, this is so because when the wages are increased the cost of production increases and in demand inelastic products, which tend to be necessities i. e. foodstuffs, the producer will transfer the increased costs to increased product prices which impacts the poor most.
The Essay on Min Wage Minimum Increase Increases
... do not stop to consider the costs of minimum wage increases. For example, where does the increase in wages come from? It certainly doesn't ... by the higher overall cost of production associated with the legislated increase in the wage for low-skilled workers, which in turn ... same as those on minimum wage in the same business, when he should be making more then the minimum wage workers. These are also ...
We can thus say that minimum wage causes inflation. Also when minimum wage increases or is introduced, the workers and the poor in society lose their source of livelihood/jobs while the rich and the owners of resources and production are free to divert their resources to more profitable ventures. Minimum wage regulations are known to add the pinch to small businesses which make little profits. This will lead to small businesses to undertake desperate measures in the short run like firing some of the employees which mean the remaining employees will be overburdened.
In the long run, these small businesses will be forced to close down due to the high cost of business and reduced profits coming from reduced productivity from the overburdened employees. The high cost of doing business will also discourage investments, mostly in the low rewarding markets. This could also lead to a destruction in such markets where producers completely withdraw from such markets. Firms and businesses will have to cut back on some of the welfare, training or qualitative programs in their institutions to cater for the increased wages of their workers.
