The idea of the minimum wage in which governments forbid companies to offer their employees' wages inferior to a given threshold has a tremendous impact on the country's labor market as well as the global economy. Ideally, wage levels of a given country have an important economic influence on that country's overall GDP output as well as the GDP per capita as it affects not only the rate of employment, and the living conditions but also the educational level. Additionally, the level of outsourcing done in countries with presumed minimum wages, market prices as well as the level of a country's inflation depend on wage levels. Indeed, in most countries in the world, in particular, the United States, economists, the government through the policymakers and even the business owners have refused to cease the continuous debate over the varying advantages and the demerits of the minimum wage. However, the arguments for minimum wage trump the flaws in arguments that have been offered against it in terms of the level of productivity and overall output of the economy.
One of the main reason for the need for minimum wage is because it reduces the level of income inequality and in extension the level of poverty of a country. According to David, Manning & Smith, (2016), setting the minimum wage for companies by the federal government cubs the growing problem of income inequality. Income inequality in most cases allows some groups of individuals earn extremely high salaries compared to other working in the same organization. As a result, the majority of the workers and a bigger percentage of a country's population live below the poverty line unable to take care of their families. With the introduction of minimum wage, however, will help reduce the income inequality as well as the poverty gap thereby allowing families to get access to affordable housing, healthcare and consequently a better life. Meer & West (2016) state that federal minimum wages not only ensures that the minimum wage workers would be making enough money which hands them the freedom to spend and save but also increases the number of individuals earning the median wage. Consequently, if the policymakers would be able to enact a national minimum wage, these inequality gaps in terms of income and living conditions would surely close.
Minimum wage in a country often reduces employees turnover and thereby increases worker productivity. When employees make less money, they tend to spend most of their time looking for greener pastures that could offer them better wages. This often leads to a higher rate of employee turnover since these workers would be seeking employers who would not only pay them fairly but also offer them better incentives. Similarly, with employee constantly seeking better employment, the overall worker productivity is greatly reduced. According to Meer & West (2016), worker productivity has a direct relationship with wages earned by individual employees. Ideally, when employees earn livable wages, they become more invested in their work and the company that employs them, therefore put more effort in their work. Moreover, livable wages push the employee to prove their worth by working harder, therefore, increases their productivity.
According to David, Manning & Smith (2016), most countries set federal minimum wages to reduce both gender and race-based inequalities. Gender and race-based inequalities are often witnessed in work environments where women and people of color tend to earn way less compared to their counterparts doing the same job. In addition, most companies tend to give low paying jobs to the minority population especially women in an effort to offer fewer wages, however, with minimum wages, most worker irrespective of race, gender or social status would be earning close if similar wages. Indeed, racism and gender-based inequalities are not just the problems of local government but a national issue about which the federal government needs to be proactive, therefore, setting federal minimum wages is the best place to start. Meer & West (2016) also state that even though the federal minimum alone cannot get rid of racial biases as well as gender discrimination, it will surely improve the level of income of thousands or marginal groups and therefore, bringing these workers to the closer to economic security and also reduces the racial gap over time.
Federal minimum wages have been credited in the past for reducing government spending on welfare programs. When a country does not have federal minimum wages, most companies tend to exploit their employees by offering dismal wages which leaves the majority of the workers living below the poverty level. To be able to support their families, these workers often turn to the federal government to solve the problem of bleak wages. According to research, some of these programs such as housing assistance, healthcare, and even scholarships offered by the federal government in support of the low wage worker can be a big burden to the taxpayers (Aaronson, Agarwal & French, 2012). The federal government spends billions of dollars on these programs annually which could be saved by setting the national minimum wage. With minimum wages, thousands or worker will be pulled above the poverty level, therefore will no longer need the assistance of these programs. As a result and in the long run, government spending on raising worker's welfare will significantly reduce which can mean lower taxes for everyone in the country.
Most classical economists argue that minimum wage can be the backbone of the economy as it boosts both its total output and GDP per capita. For instance, according to Aaronson et al. (2012), the minimum wage would instantly raise the overall GDP per capita as well as the Gross GDP, thereby boosting the economy. Minimum wage immediately increases the income level of the low-wage workers and as a result, increases the number of median wage workers; reducing the income gap but increasing the total government revenue. In this case, employees would benefit, as would businesses and even the federal government. Meer & West (2016) also argue that the poorly paid workers are always between 16 and 24 years; the rest of the workers actually need this income to live, therefore, establishing minimum wage would not just benefit the young adults looking for money at their first jobs but also the adults who take part in paying taxes, pay school fees for their children; boosting economic growth in the process.
In conclusion, the argument for the need of minimum wage overweighs the flaws in arguments provided against it because it reduces income inequality, reduces government spending, decreases gender and race-based biases and also boosts the economy. As evidence suggests, minimum wage improves the wages of the median wage workers, therefore, reduces the income inequality. Similarly, minimum wage reduces government spending by offering the poorly paid livable wages. Moreover, minimum wage boosts the economy as it increases individual spending and the overall GDP per capita.
Aaronson, D., Agarwal, S., & French, E. (2012). The spending and debt response to minimum wage hikes. American Economic Review, 102(7), 3111-39.
David, H., Manning, A., & Smith, C. L. (2016). The contribution of the minimum wage to US wage inequality over three decades: a reassessment. American Economic Journal: Applied Economics, 8(1), 58-99.
Meer, J., & West, J. (2016). Effects of the minimum wage on employment dynamics. Journal of Human Resources, 51(2), 500-522.
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