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Minimum Wage

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Introduction

The welfare of the society depends on the welfare of its members. Therefore each state tries to protect its citizens from various social problems in different ways. Economic reforms, laws and policies are introduced to improve the overall functioning of the society, but at the same time not all of them are definitely positive. Most of them are controversial and require alternative views to be considered. One of widely accepted economical instruments invented to provide social protection is minimum wage. Minimum wage means the lowest remuneration employers are to pay to the employees per hour, per day or per month (Eatwell et al. 476). As equivalently it means that minimum wage also defines the lowest price of labor one can demand, it often results in certain disadvantages for both employers and job hunters. There has been plenty of debate concerning real advantages and disadvantages of minimum wage and to evaluate the meaning of this policy it is rational to weigh up all the arguments proposed by researchers. Current essay is intended to compare and contrast presented theories and perspectives. In particular, it is questioned whether minimum wage can be the inhibitor of unemployment. As unemployment (or joblessness) means that job supply exceeds job demand, it seems necessary to observe the way minimum wage affects politics of employment and other relative issues. Although minimum wage laws are present in many jurisdictions, there are still many prosperous states having no such policies. It apparently means that there are effective alternatives to minimum wage; consequently it would be useful to investigate alternatives too.

Advantages

Throughout history the minimum wage has won a strong social appeal because it was initially introduced as a solution to provide socially preferable distribution of income and to eliminate substandard wages in the most low-paid fields of employment. The first most widely spread argument brought forward by the supporters of minimum wage is that it increases the overall standard of living in the state. The most vulnerable groups of population are protected in this way. It is considered that when there is such a control instrument as a minimum wage families become more self-sufficient. The level of poverty is decreased and thus consumption is stimulated. The employees are stimulated to work harder, while businesses are stimulated to be more efficient to be able to pay more. In addition, technological development, automation and efficiency of industries is encouraged (Berstein and Leonard 53). What is more, it is claimed that due to the rise of minimum wage government social welfare payments can be decreased.

When considering the initial minimum wage, international competitiveness is usually estimated together with

Disadvantages

Experienced economists have shown much less support for minimum wage than the general public. The question of costs of benefits of minimum wages has been critically challenged by economic research and intensive debates. The most widely spread argument brought forward by the opponents of minimum wage is that it contributes to unemployment. Obligated to pay more, employers become more selective while choosing employees and in this way workers with lower productivity, lack of experience or disabilities are disadvantaged and rejected more often. Due to the harm committed to less skilled workers some groups are totally excluded from the labor market (Gwartney et al. 97). Furthermore, employers face hardships when the minimum wage is increased. Especially small businesses are negatively affected.

As early as in 1949 George Stigler examined the shortcomings of the minimum wage and explained that in proportion to the wage increase the employment may fall more. Thus, the overall earnings of the society will be reduced instead of being increased. “The legal restriction that employers cannot pay less than a legislated wage is equivalent to the legal restriction that workers cannot work at all in the protected sector unless they can find employers willing to hire them at that wage” (Berstein et al. 53). Moreover, specific attention should be paid to uncovered sectors of economy. As the levels of unemployment grow, more people are attracted to the uncovered sectors because there no regulations can stop the employers from hiring them. Experiencing surplus in job supply, the employers of uncovered sectors are free to reduce the wages they offer and these reductions may also exceed the increase of salaries in covered sectors of national economy. The correlation between minimum wage, productivity and labor demand is demonstrated in the two graphs below, for Product Market and for Labor Market. The x-axis shows the productivity of labor, while the y-axis stands for the price of labor. The S-line is for the labor supply and the D-line is for labor demand. Thus, the higher the wage, the lower the demand for labor is. The lower the demand for labor, the higher the unemployment is (Gwartney et al. 167). 

Apart from that, the employers choose different strategies to save the revenues. A minimum wage rate may be calculated for an hour, for a day or for a month. If the term is an hour or a day, the employers tend to reduce the amount of working hours per day or working days per week and force their employees to do more for a shorter period of time. If the term is a month, the employers tend to increase the amount of working hours to get more product or services fulfilled (Anyadike-Danes and Godley 174). Even more often the employers reduce the amount of employees and force them perform the work of the same quantity of workers. In this way, both those who are expelled from employment and those who stay can hardly appreciate the benefits of increased minimum wages.

Alternatives

In fact, minimum wage turns to be not the only one and not the best decision on how to block poverty. The alternatives offered lower are believed not to affect unemployment and make a larger number of people benefit from them. The costs can be distributed more widely by means of the system of basic income (also known as negative income tax) which means that each family receives a certain sum of money for sufficient living. Besides, there are instruments of guaranteed minimum income and refundable tax credit. The latter is already practiced in the United States as well as in the United Kingdom. Finally, Italy, Sweden, Denmark and Italy are known for successful being without minimum wage (Gwartney et al. 99). Instead of that they apply collective bargaining according to which the working conditions are negotiated by employees and employers.

Conclusion

Minimum wage has been invented as an economic instrument to prevent poverty and substandard evaluation of labor. Putting the limit to the lowest possible amount of money paid to employees, minimum wage has been positively evaluated by public as it is thought to stimulate the efficiency of production and increase the overall level of living in the state. However, economic research has shown controversial results concerning the effectiveness of this poverty-preventive measure. Minimum wage has actually proved to be a useful tool in the confrontation of different political forces. There is a number of negative consequences of minimum wage revealed by plentiful research. Therefore, it seems more rational to turn to alternatives like collective bargaining practiced in such prosperous states as Germany, Denmark and Sweden.

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