Graph 1 Essay Examples
Welfare reform in the US has sought to see the increase of low-wage work in the country. In this regard, therefore, the US has managed to create more low wage jobs- and continues to do so- even as the country has persistently faced low employment rates since the late 1990, and which were hurt further with the 2007/2008 financial crisis and the subsequent recession. However, low wages mean that many people can barely make ends or having to do two jobs at the same time (Berstein & Schmitt, 2000).
In his recent State of the Union speech, the United States President Barrack Obama told the Democrats that there was need to raise the minimum wage in the country to $9 an hour, as well as an indexation of the wage to inflation. But the immediately a debate rose. While some argued that this would be a better option, a good number of the commentariat argued that if minimum wages were raised, it would impact negatively on the low-skill workers looking for job (Free Exchange, 2013). The views that accompanied the debate imply that minimum wages are not isolated on other aspects of the economy, including the job market.
Generally, the supporters of minimum wages have always argued that it lifts the those workers’ wages with the least bargaining power. Without this bargaining power, it becomes hard for any meaningful wage increases at the bottom of spectrum (Free Exchange, 2013). On the other hand, opponents have always made two points: that minimum wages are more costly to jobs as it snatches away potential workers from the labor market even though they do little to improve their (the workers’) living standards; and that the low-wage strategy is poorly targeted as the most of the low-wage workers work in families with relatively high levels of income. The first argument has been the most prominent one among economists. According to Brochu and Green (2012), the initial competitive view of many textbooks on minimum wage was that they reduce employment.
However, the empirical evidence in the field does not show this. For example, a close examination of the empirical data on low-wage workers and the implications of minimum wage does not show that the workers who did not graduate high school (including teenagers) lost jobs between 1996 and 1997, a period that saw increase of minimum wages. Moreover, the analyses of the impact of minimum wages on the young workers does not confirm the story of job loss.
Source: Adapted from http://www.economics.utoronto.ca/jfloyd/modules/sadl.html
According to the labor demand-supply graph above, higher wages leads to lower supply of employment. In other words, if there is to be enough work for as many as possible, firms have to lower their wages. Otherwise, firms may have to raise the prices of their products and/or services to account for labor costs. This will lower market demand and, therefore, lower their production. Firms cannot risk that.
The case of Britain provides good evidence on this matter. The country introduced its national minimum wage at 46 percent of the median wage, which is slightly higher than that of the US. At the time, there was widespread fear that this would have a negative impact on employment. Today, though, according to Free Exchange (2012), many agree that the country’s minimum wage has done more good than- if any- bad. For instance, it has had positive impact on the spread of wages. It has increased pay for the bottom 5 percent workers, and bridged that gaps in the bottom 50 percent of Britain’s pay scale. Moreover, it ‘seems’ to have boosted earnings higher in the income scale and, consequently, reduced wage inequality.
A few negative employment effects have been found. However, these effects have always diminished over time. Therefore, according to Bernstein and Schmitt. (2000), these statistics are no longer significant. On the same note, Bernstein and Schmitt. (2000) have argued that, if ever there are negative impacts of minimum wage on employment, such effects would mostly be attributable to inter-state differences and not the minimum wage per se.
Messr Neumark and Wascher (cited in Free Exchange, 2013) are some of the most known supporters of the view that minimum wages negatively impacts on employment. Although they still maintain that they used the right methods (that led to the findings on the negative impacts of minimum wages), the two are no longer as sure about this today as they were years ago. In a paper they wrote in 2011, they did agree that, alongside Earned Income Tax Credit (which adds to the income of the poor workers in the US), higher minimum wages did boost not only employment of single women with children, but also their earnings.
But this is not to say that minimum wage cannot hurt employment. It could if there were the suitable elasticity conditions, including perfect competition. Perfect competition would take away monopsomy power from labor markets. Instead, in a not-perfect completion context, frictions (including the costs of looking for new jobs), the workers have bargaining power (Free Exchange, 2012).
In conclusion, the debate on this matter still goes on. Indeed, this issue is a complex one, so that it is hard to be conclusive. Meanwhile, though, the empirical evidence favors those who the supports of minimum wage.
Bernstein, J. & Schmitt, J. (2000). The Impact of the Minimum Wage. Economic Policy
Brochu, P. & Green, D.A. (2012). The Impact of Minimum Wages on the Labor
Market Transitions. Department of Economics: University of Ottawa
Free Exchange (2012). The Argument in the Floor, The Economist, Nov. 24. Retrieved
23 February 2015, http://www.economist.com/news/finance-and-economics/21567072-evidence-mounting-moderate-minimum-wages-can-do-more-good-harm
Free Exchange (2013). Minimum Human Wages, The Economist, Feb. 15. Retrieved
23 February 2015, http://www.economist.com/blogs/freeexchange/2013/02/labour-markets
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