Minimum wage policy and economic effects

Minimum Wage

Why the minimum wage should not be abolished in the United States.

There are diverse issues that have been debated by politicians and critics concerning the minimum wage in the United States. Some say that the minimum wage causes an increase in the unemployment rate. In turn, it causes negative effects on the nation's economy. However, the truth on this proposition is still to be proven yet. Taking the side that the minimum wage should not be abolished in the United States, I have the following arguments to present. Most of these are obtained from debates that have been conducted concerning minimum wage, as well as from available articles providing reasons why minimum wage must stay.

Much of the arguments saying that minimum wage must be abolished argue that it causes a high unemployment rate. There are a number of studies, however, that present evidences that a minimum wage does not cause less demand for labor, neither does its lifting or banning will cause an increase in employment. Kuttner (1999) presents a proof that the minimum wage does not cause negative effects. This is in relation to the 1996 and 1997 minimum wage increase. Kuttner (1999) indicates that after the wage increase, the economy of the United States had shown positive results that include the following.

A the economy started growing at four percent a year the economy started generating so many new jobs that the federal reserve had to actually slam on the brakes a few times, and employers couldn't find workers.

Another evidence showing that minimum wage, or an increase in the minimum wage, does not cause ill effects was pointed by Kevin Drum. As indicated in an online article on minimum wage, Kevin states that And for those who insist that raising the minimum wage would cause massive economic dislocation, I'd like to point out that Congress doubled the minimum wage in 1950 with no ill effects, and raised it to about $8/hour in present-day terms in 1968, again with no ill effects.

I believe that the minimum wage law is not harmful to the people of the United States, hence it should not be abolished. In fact, based on what the minimum wage law covers, the rights of the workers are being protected. For instance, the rights of the employees are being protected from exploitation of employers, such as low salary exploitation. If the minimum wage law will be abolished, what will happen to our labor force? Chances are employers might not give the employees with the fair amount of salary that they deserve. Moreover, if there is no law that instructs employers to pay a certain minimum amount, employers might take advantage of this situation while employees cannot do anything but accept what their employees will give them. Therefore, unemployment will be a more problem if the minimum wage law will be abolished. This is especially true if the job applicants and employees are choosy and don't accept jobs that are way below their expected salary.

Aside from the unemployment problem that might arise if the minimum wage will be abolished, the consequences of such problem will greatly affect our economy. An employee who is paid for only a small amount of money, in an instance when there no longer exist a minimum wage law, will face negative changes in his standard of living. There can be a possibility that his salary can no longer sustain his daily needs. Unlike in situation when there exists a minimum wage law, all employees are assured that they will receive no less than the least amount that the minimum wage law had set. This least amount, which the government sets and is certainly enough to sustain an employee's living, can be considered as helpful to an employee rather than to receive a very low salary when there is no minimum wage law.

One example from the argument that the minimum wage causes unemployment is that employers are forced to cut staff when there is an increase in minimum wage. Card and Krueger (2004), opposes this however. From their study on higher wages, they indicated that an increase in wage causes a circular motion of positive effects. Alexopoulus (2004) explained this view and suggests the following.

Employees whose pay is boosted by a minimum wage spend their income - and low-earning individuals spend very high proportions of their income, saving little if any. The extra spending power is returned to employers through greater consumption of goods and services. This greater demand for goods encourages employers to hire more staff.