The duty of the government to set and dictate the minimum wage should be outlined in all employment contracts. Now and then the minimum wage in America is reviewed to correct inflation. The study of microeconomics enables us to examine specific economic problems such as households and small enterprises, and as such, it is critical that the government continually review the wage issues in conjunction with the labor unions. In essence, employment is one of the major microeconomic issues in any given economy and with that, it is important that the issue concerning the minimum wage bill is addressed fully. The aim of the paper is to provide an argumentative view focusing on why the federal government should lower the minimum wage for it to reach its desired level of economic growth and development.
The formulation of the minimum wage is important because it helps in reducing the burden of tax. According to Brock Haussamen, low-income earners do not use as much public goods and services as compared to high-income earners. An unemployed worker is given welfare, shelter, and food in nearly all the states. Therefore, when the minimum wage is set, few people will require both public goods and services and this will minimize the tax burden on the citizens and the state (Neumark et al. 2014).
Prescribed minimum wage helps small businesses and companies to plan their expenditure and finances. The employers in these small businesses can decide how many workers to employ and how much to pay for their labor, this way they can make reasonable profits. Therefore, the businesses will be able to have a small wage expense which will ensure that the corporate profitability is increased.
Lowering the minimum wage will help to create employment to some extent. According to the neoclassical economics, reducing the cost of an item say a product will lead to an increase in demand. When the minimum wage is lowered then companies and small businesses will be in a position to hire more workers. Additionally, with just a small wage to pay to an employee, the employer is positioned to employ an additional worker, therefore, reducing the rate of unemployment in the United States of America (Ratha et al. 2015).
When the minimum wage is increased, the unskilled labor force and the youth are the most affected. For example, research conducted by the center for economic and policy research in 2015 concluded that a ten%increase in minimum wage reduced unemployment by 2-4% and increases low-skill employment and employment in hotel and restaurants by 1-3% (Ratha et al. 2015). Such statistics reveal that the there is a correlation between employment and amount of minimum wage in a country.
Ideally, all other factors held constant, lowering the minimum wage decreases the price of commodities. The decline of the products price is as a result of the decrease in the cost of production. The low cost of production will in effect lead to the goods being cheaper since the burden of production is less. As a result, the low price of goods will help to fight inflation, and the individual consumers will buy a bigger basket of goods for a reduced price.
An increase in minimum wage compels the employers to shift the burden of the cost of labor to the consumers. They do this by increasing the price of the commodities. Following the law of demand, when the price of a product increases the quantity demanded of that commodity decreases, ceteris paribus. The increase in the price of the commodities, the consumers, may result to other substitutes, and this lowers the marginal revenue of the company. On the other hand, when the minimum wage is reduced, the price of the commodities decreases and therefore attracting more demand. Therefore policy makers push for lowering the minimum wage.
Lowering minimum wage helps to reduce crime rates. When the minimum wage has lowered the youth, and the low-skilled people will be able to secure employment. This is because the employer will not lose by paying low wages and the laborers will gain by earning even just a little. When the working people are busy working, they will not have an excuse for stealing to meet their basic needs. Additionally, they will also not have time to indulge themselves in illegal drugs.
To some extent lowering the minimum wage increases the growth of the economy which is measured by the Gross Domestic Product GDP=Y = C + I + G + X, where C is consumption, I am investments, G is government expenditure, and X is the net exports. Economists advocate for lowering the minimum wage because the minimum wage is increased there will be a shift in income from the low-income earners to high-income earners. High-income earners have a high marginal propensity to save MPS and therefore low marginal propensity to consume as MPS+MP= 1. We know that consumption and GDP are positively correlated therefore a decrease in consumption will lower the GDP, and an increase in consumption will raise the GDP.
When the minimum wage is reduced, it creates a great opportunity for businesses to thrive especially during periods of economic recessions. During the recession, the production level of the firm is lower than the input and therefore it is only reasonable to cut on costs. The lowered minimum wage is helpful to the small businesses because they will be able to maintain the same output but at a lowered cost of input (Schmitt and John 2013).
At no cost should the federal government hesitate to lower the minimum wage? The reason is that a reduction in the minimum wage has no great impact on the low-income earners specifically those from poor backgrounds. When the minimum wage was increased by $7.25 only 12.7 %of, the low-income families were affected. Additionally lowering the minimum wage will help to increase productivity and the overall growth of the economy. However, the policymakers should be able to come up with the optimum level of minimum wage. When the minimum wage level is lowered to the extreme, then the living standards of the people will be lowered which in effect will not be able to afford basic needs.
Neumark, David, JM Ian Salas, and William Wascher. "Revisiting the Minimum WageEmployment Debate: Throwing Out the Baby with the Bathwater?." ILR Review 67.3_suppl (2014): 608-648.
Ratha, Dilip, Soonhwa Yi, and Seyed Reza Yousefi. "Migration and development." Routledge Handbook of Immigration and Refugee Studies 1.3 (2015): 260.
Schmitt, John. "Why does the minimum wage have no discernible effect on employment." Center for Economic and Policy Research 22 (2013): 1-28.
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