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Should the Minimum Wage be increased?
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Should the Minimum Wage be Increased?
Introduction
The question of whether raising the minimum wage in the United States is viable continues to intensify in social and political platforms as economists sharply disagree over the possible impacts of doing so to the economy. Conservative economists like (Wilson, 2012) strongly oppose raising the minimum wage because it would significantly increase overhead expenses for firms, in the process dragging economic growth. However, critics of this school of thought most notably (Cooper & Hall, 2012) dismiss this notion as simplistic, arguing instead that businesses would, in fact, register higher sales owing to the increased disposable income among consumers.
Beyond the political rhetoric and sensationalist perspectives on minimum wage by media organizations that wind up giving skewed analysis, statistical evidence from a study conducted by (Schmitt, 2013) based upon mathematical modeling showed little correlation between the increase of minimum wage and the corresponding negative effect on employment. According to the Schmitt, this is possible as the increase in production cost is effectively counterbalanced by the corresponding increase in demand alongside other variables. Consequently, the object of this paper is to prove that raising the minimum wage is, in fact, a sound economic policy contrary to conventional ‘text book’ economic ideology. In this regard, the paper will highlight several positive impacts to the economy including economic stimulus, employment opportunities, employee satisfaction, and financial security.
Economic Stimulus
As explained by (Wilson, 2012), minimum wage has long been defined as the minimum living standard. From a policy standpoint, governments use this to determine the amount of money that is deemed fair enough as compensation for work done by the average worker. In a nutshell, this is the amount that the government presumes to be sufficient for an individual to live a relatively decent standard of living. The argument put forth by mainstream economists like (Wilson, 2012) against increasing the minimum wage is that it leads to job losses as companies are unable to sustain an ever increasing wage bill. To comply with this policy (if it is indeed adopted), Wilson argues that employers are forced to apply cut-backs to reduce other overheads. In the end, these employers are forced to decrease their existing workforce leading to mass job losses that puts a strain on the economy as the federal government is forced to increase budgetary allocations for transfer payments like welfare programs. He explains that these transfer payments significantly eat into capital/ expenditure that would otherwise have been channeled towards development programs (Wilson, 2012).
While this is a compelling logic, other economists believe that a rise in minimum wage leads to a subsequent increase in disposable income among a country’s population (Cooper & Hall, 2012). This stimulates economic growth in several ways. In the first instance, a population with increased disposable income has enough money to invest in small and medium scale ventures as they engage in income generating activities. This develops the private sector thus increasing revenues earned by the federal government through tax remittances. Secondly, increased disposable income among the population increases the country’s purchasing power parity. This encourages spending among people which earns the government more revenues through value-added tax collections (Cooper & Hall, 2012).
Employment Opportunities
As stated earlier a rise in the minimum wage leads to more money in people’s pockets. When people have more disposable income, the overall demand for commodities increases as they look for avenues to spend their surplus income leading to a spending culture. This rise in demand means more customers for business entities which forces them to scale up production to service the growing demand. In the end, businesses are forced to hire more workers leading to more job opportunities for other people. This position is supported by a recent research that shows a significant growth in job opportunities among states with a higher minimum wage as reported by (Frizzel, 2014). The study that was released by the U.S Labor Department in 2014 indicates that there was an average annual growth of 0.85 percent in job opportunities across13 states whose minimum wage was adjusted upwards compared to 0.61 percent across the remaining 37 states whose minimum remained unchanged (Frizzel, 2014).
This is in stark contrast to the idea advanced by conventional economists like (Wilson, 2012) that raising the minimum wage leads to job cuts. While this may be true in the short term, higher purchasing power parity leads the market forces to create a demand for workers as explained by (Schmitt, 2013). Besides creating employment opportunities in a country, it is also worth mentioning that increasing the minimum wage makes a country’s more attractive as a labor market and positions it well in the global arena. This helps the country retain its workforce by discouraging people from moving to other countries where the pay is better as argued by (Wadhwa, 2013). Instead, these workers stay and work in the country hence boosting the overall economy. In addition to retaining the country’s workforce, a higher minimum wage makes the country more attractive to workers from across the globe which in return enables it to attract the best brains who then contribute towards building the economy (Wadhwa, 2013).
Employee Satisfaction
A study by Reich, Jacobs, and Bernhardt (2014) seeking to establish the relationship between remuneration and employee morale confirms that workers whose minimum wages are raised from time to time by their employers to cushion them against inflation are happier compared to their counterparts who whose salaries remain stagnant over time. According to the researchers, most workers at the bottom of the pyramid would be happy to remain as workers for their current employer if they are guaranteed occasional increments to match the prevailing cost of living (Reich, Jacobs, & Bernhardt, 2014). While this may seem irrelevant from an economic perspective, it is worth noting that employee satisfaction is important for any organization looking to optimize productivity and remain competitive.
As noted in a survey by the Harvard Business School, 71 percent of the 550 business executives polled cited employee satisfaction as the main morale booster among workers and linked it directly to staff turnover (Havard Business School, 2013). This is important for any organization because production power directly depends on departments working in full capacity that is only possible with a motivated team meaning fewer workers are resigning from their positions in search of better-paying jobs elsewhere. A raise in minimum wage also guarantees employee satisfaction and reduces cases of frequent strikes by workers through their unions as they demand more pay leading them to concentrate on their tasks.
This saves the employer valuable time and revenue that would otherwise have been wasted in industrial courts. The findings further indicate that when the workers minimum wages are raised to be commensurate with the living costs, they become less frustrated and can devote all their efforts working to meet the organization’s goals (Havard Business School, 2013). In a nutshell, a country’s economy is driven by workers most of who belong to the lower cadre. Keeping this group happy is in the interest of any government keen on economic growth.
Financial Security
As the cost of living goes up, pressure keeps mounting on the lower end section of the society leading many people to feel dejected and financially insecure according to (Boushey, 2014). This feeling of hopelessness among the workers gives them a negative outlook of life and affects their work ethic. Consequently, a reduced work rate leads to poor output further stifling economic growth. On the other hand, increasing the minimum wage inspires confidence among workers and gives them the perception of financial security that has a direct positive impact on the economy.
In addition to work ethic, (Boushey, 2014) believes raising the minimum wage creates confidence in the economy and people to look for employment due to the promise of decent pay. This decreases the unemployment rate in the process saving the government resources that would have been used to provide welfare services to the unemployed. As noted by economists and other policy makers, the Unite States government spends a lot of national resources in financing transfer payments which, in the long run, adds no significant value to the government regarding the return on investments.
Conclusion
While determining the impacts of raising the minimum wage to the economy, it has emerged that a country stands to gain more with a higher minimum wage. Outside the general assumption that increasing the minimum wage is likely to result into job losses as explained by conventional economists, it is rather apparent from research that raising the minimum wage does, in fact, spur economic growth in several ways. For example, raising the minimum wage increases the disposable income of the population and encourages them to invest the surplus in small businesses. These businesses form part of the private sector which is the main driver of the economy as it provides the government with revenue in the form of taxes. These taxes are then used by the government to finance development programs such as the building of infrastructure. In addition to paying corporate taxes, a higher minimum wage leads to a higher spending power among the citizens which earns the government additional value added tax with every purchase made by the people.
In the second instance, it has emerged that a rise in the minimum wage leaves people with more money to spend upon taking care of the basics. With this money in their pockets, the demand for commodities especially those of ostentatious nature increases forcing the companies to increase the amount of goods produced to meet the rising demand. Eventually, businesses are forced to employ more personnel, and this leads to more employment opportunities for the society as a whole.
Besides creating employment opportunities, raising the minimum wage is also instrumental in promoting employee satisfaction, as can be seen from the discussion, a country’s economy is driven by the workers mostly from the lower cadre. Keeping this group of people satisfied helps the company or the country for that matter retain its workforce while also reducing downtime as a result of strikes and other industrial mass actions that disrupts normal operation. Overall, it enables workers to focus on their work.
Finally, it is also evident that raising the minimum wage increases the confidence of the workers and gives them a perception of financial security. As explained by psychologists, this confidence gives the workers a positive outlook towards life and acts as a motivating factor at the workplace. Through this motivation, they can optimize productivity and in the process contribute positively towards the overall growth of the country’s economy.

References
Wilson, M. (2012). The negative effects of minimum wage laws. CATO Institute.701. Retrieved from http://object.cato.org/sites/cato.org/files/pubs/pdf/PA701.pdf
Cooper, D., & Hall, D. (2012). How raising the federal minimum wage would help working families and give the economy a boost. Economic Policy Institute. Issue No. (341). Retrieved from http://www.epi.org/files/2012/ib341-raising-federal-minimum-wage.pdf
Schmitt, J. (2013). Why does the minimum wage have no discernible effect on employment?. Center for Economic and Policy Research. (1), 2-22. Retrieved from http://www.cepr.net/documents/publications/min-wage-2013-02.pdf
Frizzel, S. (2014, July 19). New data show faster job growth in states with higher minimum wage. Time INC. Network. Retrieved from http://time.com/3007429/minimum-wage-job-growth-states/
Wadhwa, V. (2013, July 25). The immigrant brain drain: how America is losing its high-tech talent. PBS Newshour. Retrieved from http://www.pbs.org/newshour/making-sense/the-immigrant-brain-drain-how/
Reich, M., Jacobs, K., & Bernhardt, A. (2014). Local minimum wage laws: impacts on workers, families and businesses. Institute for Research on Labor and Employment. 104, (14). Retrieved from http://www.irle.berkeley.edu/workingpapers/104-14.pdf
Havard Business School. (2013). The impact of employee engagement on performance. Harvard Business Review. Retrieved from https://hbr.org/resources/pdfs/comm/achievers/hbr_achievers_report_sep13.pdf
Boushey, H.(2014 March 12). Understanding how raising the federal minimum wage affects income inequality and economic growth. Washington Center for Equitable Growth. Retrieved from http://equitablegrowth.org/understanding-the-minimum-wage-and-income-inequality-and-economic-growth/