Why Minimum Wage Helps the Economy: Difference between revisions
| Line 27: | Line 27: | ||
The Federal Earned Income Tax Credit (EITC), a refundable tax credit that supplements the earning of low- and moderate- income workers, is now out of date as the minimum wage has not kept pace with inflation. Indeed, it has not increased since September 1997 which cause minimum wage workers to fall more and more behind each year. If the minimum wage would have kept pace with the rise of | The Federal Earned Income Tax Credit (EITC), a refundable tax credit that supplements the earning of low- and moderate- income workers, is now out of date as the minimum wage has not kept pace with inflation. Indeed, it has not increased since September 1997 which cause minimum wage workers to fall more and more behind each year. If the minimum wage would have kept pace with the rise of price level, it would now be over $8.10. The real inflation value wage in 2006 is now at its lowest point in 50 years. | ||
What workers are interested in is not their nominal wage but their real wage because real wage reflects purchasing power. Consequently, a raise in the price level should be paralleled with an equivalent raise in the nominal wage. Namely, | |||
% (P1-P0) = % (W1-W0) | |||
Unfortunately, workers are often being fooled | |||
Revision as of 20:00, 29 November 2006
Introduction Hurts Economy Helps Economy
Economics is the science that aims to optimize the allocation of resources in society. So, if economists came with the term minimum wage, it definitely must have been for a reason. Let us make a brief overview of the justification of the establishment of a minumum wage in the labor market.
Introduction, an Initiate Effort
A minumum wage is necessary to promote any effort from the part of workers. According to the efficiency theory, there exists a minumum wage, which workers require before investing any effort. If we look at this tendency, we can briefly state that a minumum wage fuels the economy and lays out the fundamentals of productivity.
Effect on Employment
Liz this is your part
Effect on Unemployment
Liz this your part
An Increase in Minimum Wage would Reduce Poverty
Nowadays the actual welfare reform cause poor families to rely on their savings from low-paid jobs. An individual who works at minimum wage receives around $10,700 year which is about $6,000 below the 2006 poverty line for a family of three. A minimum wage increase would likely create a positive effect in reducing poverty.
The Federal Earned Income Tax Credit (EITC), a refundable tax credit that supplements the earning of low- and moderate- income workers, is now out of date as the minimum wage has not kept pace with inflation. Indeed, it has not increased since September 1997 which cause minimum wage workers to fall more and more behind each year. If the minimum wage would have kept pace with the rise of price level, it would now be over $8.10. The real inflation value wage in 2006 is now at its lowest point in 50 years.
What workers are interested in is not their nominal wage but their real wage because real wage reflects purchasing power. Consequently, a raise in the price level should be paralleled with an equivalent raise in the nominal wage. Namely, % (P1-P0) = % (W1-W0)
Unfortunately, workers are often being fooled
A minimum wage increase from $5.15 to $7.25 would return the value of full-time work to just above its 1997 level and renew the nation's commitment to working families.
Thus by rising the minimum wage, this would stimulate consumption by increasing the earnings of low-income workers who will spend their entire paycheck (as opposed to higher income groups who would be more likely to save their extra earnings). It also increases the work ethic of these low-income workers, as employers demand more return from the higher cost of hiring these employees. In other words, workers will work harder to find and keep their jobs since employers will be more and more picky as the minimum wage increases.
In another case, the minimum wage provides a “change” which demands employers to use a high productivity strategy rather than a high labor turnover strategy, therefore improving the stock of human capital in an economy.
Limits Capitalistic Exploitation
The law instating the minimum wage requires employers to implement strict timekeeping procedures that accurately capture non-exempt employees’ hours of work (Federal Minimum Wage).
Time Restraints:
- Unauthorized overtime
- Work performed before or after an employee’s regular shift
- Work performed during a lunch period or other break designated as unpaid
- Time spent “catching up” or meeting deadlines, even if it is the employee’s fault that the work is not complete
- Work performed “voluntarily” off the clock
- Work performed off premises or at the employee’s home
OSAH:
Occupational Safety and Health Administartion requires employers to provide a safe workplace for all employees.
Confidentiality:
Prevents most employers from subjecting applicants or employees to a lie detector test.
FMLA
The Family and Medical Leave Act, which requires covered employers to provide up to 12 weeks of unpaid, job-protected leave to eligible employees.
These different criterias discourage a labor intensive work force and allow employers to invest more in capital, training and research development. In other words, we can say that by limiting capitalistic exploitation we are increasing the economic growth (Wikipedia).
Moderates Discrimination
The minimum wage helps secure workers against any sort of discrimination or exploitation. The minimum wage is instated by the the FLSA, Fair Labor Standarts Act, and can be therefore legally enforced.
The minimum wage sets equal employment opportunities which requires employers to give all applicants an equal opportunity to be hired, and helps prevent employment discrimination on the basis of race, color, religion, sex, national origin, age or disability.
If no minimum wage law was present, an employer would be free to choose any wage he/she wanted to. This would therefore would leed to pay the workers a strick minimum in order to make more profits, thus taking advantage of the workers. A minimum wage forces employers to recognize the inherent worth of human labor.
Conclusion, State vs. Federal Wage
The last raise of the minimum wage in 1997 has provided an important motivation to the incomes of low-wage workers. If the opponents of minimum wage dispute negative effects, it would have been noticed in the map shown below. The different studies performed have demonstrated that states with a higher wage have not seen any negative effects.
Even if in cases of the opponent approach who argue negative effects, minimum wage as a whole would be better off.
