ECO Research Paper

Minimum Wage Fallacy

It is common for most developed countries to exhibit a policy on minimum wage rate act which regulates the wages that employees in that country receive. The minimum wage rate act requires employers to pay some minimum level of salaries to their employees. It calls for a match of a particular kind of work with a given pay measured by the amount of time in hours as stipulated by the description of the job (Lavoie, & Stockhammer, 2013). With this acts in place, there have been numerous debates of its effectiveness to the economy and the employment sector at large. It has raised numerous concerns on exactly which group of individuals benefit from the initiative.

In the common opinions given by many scholars on the aspect, the minimum wage rate act seems to benefit the laborers only. In a shortsighted view on the aspect, it can be put forward that the benefits can be immediately realized if only it is opinionated on the people who are employed currently. The view does not justify the claim since there is an anticipation that changes can be experienced. The most popular employment scholar and Nobel Prize winner economist Mr. Milton Friedman also has his opinion on the wage rate act. He expounds on the impact of the laws on a long term basis. It is important to present the opinion of the common person on the same. Most people believe that laborers would become rich if they were to receive some level of minimum wage. The common person’s view is mainly found in the communist population who complain about their counterparts capitalists are profit mongers. They believe that the laws can enable equal wealth distribution by the rich through paying their laborers minimum wages.

It is impossible to mention minimum wage rate without Friedman viewpoint coming into mind. The economist scholar disagrees with the opinion of a common person by presenting his long-term impacts of the laws. He claims that these minimum wage rate laws are anti-labor to the working conditions in the economy (Belman, & Wolfson, 2014). He bases his arguments on several reasons. One of his claims is based on the fact that laborers are viewed as a source of energy to the production process in the capitalist system in an economy. They are supposed to provide physical force and perform mechanical tasks to the capitalist for pay where most of the tasks are predefined. Technology has brought vast changes in the labor market. With rapid use of technology in manufacturing and production companies, the human labor is facing competition from this machines thus reduced tasks for laborers (Bennett, 2014). Therefore, the minimum wage rate will become an anti-labor piece of legislation.

Outsourcing labor refers to the practice where laborers in the developing countries offer their services at a cheaper wage as compared to those from developed countries. Milton Friedman also mentions that this behavior of outsourcing is mainly by a phenomenon refers to as labor cost arbitrage. The arbitrage is caused by having the developed countries having minimum wage rates acts which makes it illegal for employers to pay their workers below the set wage while most developing countries do not have. Such has done many businesses to set their operations in such countries to outsource cheap labor as compared to what they would pay in their home countries.

To conclude, minimum wages rates are seen to work against the common laborer. According to the trends, reported economies with enacted minimum wages laws have seen a drastic reduction in employment.

References

Belman, D., & Wolfson, P. J. (2014). What does the minimum wage do?. WE Upjohn Institute.

Bennett, F. (2014). The ‘living wage’, low pay and in work poverty: Rethinking the relationships. Critical Social Policy, 34(1), 46-65.

Lavoie, M., & Stockhammer, E. (2013). Wage-led growth: Concept, theories and policies. In Wage-led Growth (pp. 13-39). Palgrave Macmillan, London.