Microeconomics: Minimum Wage

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Microeconomics: Minimum Wage

The issue of minimum wage has caused much debate recently. While most workers advocate for an increase in the minimum wage, many employers and economists argue that this would not be feasible everywhere. Increasing the minimum wage increases the expenses of a company. This is likely to lead to increased unemployment as businesses try to find ways of staying afloat. In addition, it is important to consider the disparities existing between states. Different states in the country have diverse levels of economic activity. While some cities would manage to increase the minimum wage with minimal costs, other cities would struggle just to keep businesses surviving. Despite these costs, workers would benefit from an increase in wages.

In his article The Impact of a Minimum-Wage Increase, Jared Bernstein shows how increase in the minimum wage would affect workers and businesses. He notes that more than 16 million workers who earn low incomes would benefit but this would mean half a million people would lose their jobs. About 900,000 people would move above their poverty level. Since the increase in wages would affect profitability of many businesses, it is estimated that the incomes of the wealthy families would decrease by 0.4%. The author notes that the increase in the wages will have minimal effect on the federal budget. He adds that the minimum wage should increase, as this is likely to have no long-term implications that will affect businesses negatively.

The government is likely to benefit more if it increases the minimum wage. The cost of living has increased over the years. While many people without families can manage to budget their current income, people with dependants struggle to survive on minimum wage. Most of them have second and third jobs so that they can make ends meet. This affects the quality of living. Many parents end up spending most of their time in work places and less time with their families. This contributes to the prevalence of social ills in some situations since the parents are not always there to guide their children. Increasing the minimum wage would make it possible for parents earning low incomes to spend more time at home as their income would be enough. On the other hand, it is important to consider the people who earn minimum wage. Most of the people who earn the minimum wage are students who are in their first jobs, who are in colleges and high schools. These jobs give them a chance to gain some experience in employment and it increases their chances of securing better jobs.

 Many low-income earners depend on additional government support to survive. Increasing the wage would reduce the number of such cases. This would reduce costs to the government and it would channel the money used in such programs to other areas. However, the increase should not be so extensive to the extent that it affects businesses. Cities have to consider their economic disparities in determining the increase in minimum wage. This is because the increase will affect them differently. In addition, it is important to consider the effect that the increase in the minimum wage will have on the purchasing power. Manufacturers and other businesses affected by the increase might consider it necessary to increase the price of the products and services they are producing so that they can cover some of the increased costs. Thus, although the workers will realize an increase in income, their purchasing power will decrease.

Other than increasing product prices, businesses will look for other ways of reducing their expenses once they have increased their minimum wage. Some businesses may opt to automate their services if they perceive this to be a cheaper alternative. This will reduce their need for low skilled employees. Others will opt to higher people with more skills who can do more jobs compared to the low skilled workers. Some businesses will opt to reduce their workers so that they can cover the costs. Others will reduce their operating hours. This will mean that many workers will not have the option of working on full time basis. Most of the low-income workers are low skilled workers. When their jobs are replaced by machines, it defeats the purpose of increasing the wages in the first place. The government has to consider how increasing the minimum wage will affect small businesses. Despite this, it is hard to convince people that businesses cannot increase the minimum wage if corporate bosses continue earning some of the highest incomes.

Conclusion

It is clear that increasing the minimum wage will have both positive and negative effects. On one hand, it will increase people’s living standards thereby enabling them to live a better life. It will increase the number of people outside the poverty level at some point. On the other hand, it is likely to increase the rates of unemployment. In the past, most of the people who used to earn the minimum wage were high school and college students. However, this has changed and many people with families are now earning the minimum wage. They have to struggle to survive to keep their families alive. According to Bernstein, more people will benefit from the increased incomes. Therefore, businesses should consider increasing the minimum wage at sustainable levels.