Methodology

Running head: INCREASING THE MINIMUM WAGE 1

INCREASING THE MINIMUM WAGE 2

INCREASING THE MINIMUM WAGE

Danya Alsinan

Lapo Salucci

March 5, 2018

Increasing the minimum wage

The federal minimum wage has for a long time been as a tool of alleviating income among citizens in the United States since it was first enacted in in 1938. The law mainly targeted formal sector workers many of which do not live in poor household while excluding large segments of labor force in the informal sector. By then the minimum wages was to set to $0.25 per hour and has since seen significant increase with the current one being $7.25 per hour in translates to an average yearly income of about $15,800 per year for all minimum wage workers (UC Davis Center for Poverty Research, 2018).

Figure 1 Shows the change of the annual minimum wages of families of 2, 3, and 4 persons and estimated poverty lines over period the 1964-2018. From the graph it can be seen that most four-person household live below the poverty threshold.

Figure 1

Retrieved from http://www.epi.org/publication/minimum-wage-workers-poverty-anymore-raising/

Increasing federal minimum wage can successfully address income inequality in United States more than any other policy. A report released by Congressional Budget Office in 2014, showed that raising the minimum wage to $9 would elevate more than 300,000 Americans from poverty while an raising to $10.10 would elevate 900,000 Americans from poverty (Congressional Budget Office, 2014). However, the increase should strategically be implemented to cover only the workers earning near the minimum wage for positive effect to be realized. As of now a big percentage of workers in United States is not covered by minimum wage legislation. Changing the law to cover these people will make a big difference as opposed to just increasing it. This is because if the minimum wage is generally increased will make formal sector workers enjoy higher wages yet some already earn multiple minimum wages hence keeping the current status quo. Again, the relevant authorities should make sure that workers are paid what they are legally entitled to earn.

Whether increasing the federal minimum wage curbs income inequality in United States is dependent on various other factors such as the rate of inflation, whether the minimum wages are enforced, and whether they affect informal workers or not. In general, the impact at which raising the federal minimum wage has reduced income inequality is modest because it only focuses on the informal sector workers while ignoring millions of people who work in the large informal sector. Again, for the past three decades the minimum wage has not been raised enough to account the rate inflation rate which raises every year. This has yet seen more households live below the poverty threshold since the income they get is not even enough to satisfy all their family needs. While implementing the policy, the state should ensure that: the stakeholders involved comply with the law, the law covers the low-income earners in the informal sector and that the productivity of workers of from low-income families is increased in the long run (Gindling, 2014).

While increasing the minimum wage would greatly benefit the economy, the action can be detrimental to minimum wage employees. Firstly, it can lead to retrenchment of workers. If employers especially small business owners find themselves in a situation where they have to compensate their workers more than they what they would need to keep their businesses growing, they are likely to layoffs some workers in order to remain within budget (Meer & West, 2015). So, as some workers enjoy good incomes other will be left unemployed. Other employers can opt to increase the prices of their products and services for them to get enough money to manage their wage bills. This would concurrently lead to slightly higher costs of living and consequently lead to another push to raise the minimum wage again. As a result, the prior raise of the minimum wage would not make any difference and the income inequality will still remain the same.

Another possible effect is that increasing minimum wage would be intensify the competition of some job positions. Good salaries will attract competent individuals to job positions which are meant to be for vied by younger inexperienced employees robbing them job opportunities to earn them experience and income to sustain their needs. The employment rate of workers might also go down as employers might not be ready to employ more workers since they are already paying more. Employers would rather prefer to outsource their jobs to employees from other countries willing to work for less rather than employing many employees from United States for high pay.

A coalition of democrats, union leaders and workers have constantly been advocating for better minimum wages. Earlier this year the coalition launched a campaign to raise the minimum wage for the people of Maryland to $15. They proposed to reach these figure by 2030 which will benefit more than 570,000 workers. This is one of latest moves aimed at raising the minimum wage for Americans. In their campaign they cited that more than 35 percent of Maryland households leave below the poverty threshold and struggle to afford the basic necessities (Staff, 2017). Apart from the democrats, this policy is likely to get support from state legislators and labor unions.

On the other hand, conservatives who only believe in free market are likely to oppose the policy as they have constantly done before. This group of people argue that the government should not intervene in any in way in matters concerning minimum wage and that such issues should be controlled solely by the economy (McCarty et al., 2016). As most of the conservatives tend to occupy the rural areas, they can live better with the current minimum wage as opposed to the people living in the urban areas. Employers is the other group of people who are likely to oppose the increase of minimum wage since it will definitely raise wage bills and reduce the profits they get from their businesses.

Even though increasing the federal minimum wage can greatly reduce the income inequality in United States other policies such as taxing the rich and providing affordable education to America citizens can be incorporated together to eradicate the policy issue completely.

References

Congressional Budget Office. (2014). The Effects of a Minimum-Wage Increase on Employment and Family Income. Retrieved March 5, 2018, from https://www.cbo.gov/publication/44995.

Gindling, T. (2014). Does increasing the minimum wage reduce poverty in developing countries? IZA World of Labor. doi:10.15185/izawol.30

Meer, J., & West, J. (2015). Effects of the minimum wage on employment dynamics. Journal of Human Resources.

Staff, W. (2017, January 10). Study: 35 percent of Marylanders can't afford the basic necessities. Retrieved March 03, 2018, from https://www.abc2news.com/news/state/study-35-percent-of-marylanders-cant-afford-the-basic-necessities

McCarty, N., Poole, K. T., & Rosenthal, H. (2016). Polarized America: The dance of ideology and unequal riches. mit Press.

UC Davis Center for Poverty Research. (2018, January 12). What are the annual earnings for a full-time minimum wage worker? Retrieved March 05, 2018, from https://poverty.ucdavis.edu/faq/what-are-annual-earnings-full-time-minimum-wage-worker