Importance of Minimum Wage in the Contemporary Labor Market

Importanceof MinimumWagein theContemporaryLaborMarket

Importanceof MinimumWagein theContemporaryLaborMarket

Minimumwageis currently a controversialissuethat has raiseddebatesabout whetheritis aneffectivetoolthatthegovernmentcan useto addresslaborchallengesorhelptheunderpaid employees.Minimumwageisdescribed as theleastamountofwagethatemployersare requiredto paytheir employeesper hour(Root, 2014). Althoughminimumwagepolicyhas beenimplementedin severalcountriesformanyyears,economistshavenot agreedon whetheritiseffectiveornot. Thispaperwill addresstheimportanceof minim wageas a toolto helpemployeesearnat leasta subsistenceincome,reducethetaxburden,laborturnover, andpoverty.

Minimumprovidesan effectivestrategyto ensurethatemployeesearnenoughmoneyto meettheir basicneeds.Intheabsenceof a minimumlevel of wagesetby thegovernment,thedeterminationof thewagesorsalarieswill likelybe leftto thediscretionof employerswhosemainobjectiveis to makeprofits(Coppola, 2014).Themostlikelyscenariois thatemployeeswill be underpaid. Aminimumwagethat is determinedby thegovernmenttakesaccountof thecostof living,thusensuringthatemployeesarepaidan amountthat will helpthem dealwith theprevailingeconomicchallenges.Therefore,aneffectiveminimumwageis adjustedfromtimeto takeinorderto enhanceits consistencywith theprevailingeconomicconditionsandthecostof living.

Fromthegovernment’sperspective,theminimumwageresolvestheconflictbetween theemployerandtheemployee.Employersunderstandthatthere is a significantslackin thecurrentlabormarket,which meansthattheyhavelimitedincentiveto increasewagesto levels that are sufficientforemployersto liveon (Coppola, 2014). Employees,on theotherhand,lacktheincentiveto demandhigherwagessince such a decisioncould leadto retrenchment.Therefore,theslack existingin thelabormarketwill putemployeesandemployersin a conflictingsituationin theabsenceof a minimumwagerate.Thismight drivethewagesdownto a level that is below thesubsistenceamount.Itis theroleof thegovernmentto addresssuchconflictsby settingtheminimumwages.

Awelldesignedminimumwagepolicyreducesthetaxburdeninthelongrun.Studieshaveindicatedthatpeoplewhoearnat leasta minimumwagerequireslesspublicservicecomparedto unemployedpeople(Root, 2014). Unemployedworkersrequiremanyservices(suchas rent assistance,welfare,andfoodstamp),allof which increasestheburdenon thetaxpayers. Thisimpliesthatpeopleearningbelow a subsistencelevel survivein thepocketsof othertaxpayers whoare pressuredto paymoretaxto sustaintheir unemployedcounterparts.Therefore,settinga minimumwageandadjustingitregularlyensuresthatworkersareabletoaccessthebasicnecessitieswithout solicitingtoomuchof thegovernmentassistance.

Aminimumwagethat issetto a level that motivatesemployeesreducestherateof turnover. Theimplementation of thelivingwagepolicyin San Francisco reduced&nbsptherateof turnover of securityofficersin theSan Francisco Airport from 95 % to 19 % within a yearof implementation (National Employment Law, 2014).In addition,theminimumwageincreasestheproductivityof workersby 35 % since itincreasestheir morale.Theincreasein moraleof employeesenhancestheir wellbeing,whileemployersbenefitat thesametimefrom theincreasein productivity.Moreover,a minimumwagethat is determinedby thegovernmentprotectsemployersfrom a competitivedisadvantagesince allemployersare expectedto comply with thegovernmentpolicy.

Currently,themajorityof economistsagreethattheminimumwagepolicyhasthecapacitytoreducepoverty.An increasein theminimumwageincreasesthenumberof peopleearningamountthat is sufficientto shiftthem from povertyto themiddle-income earners. Accordingto Konczal (2014) increasingthecurrentuseminimumwageper hourby 10 % can helpthegovernmentreducethenumberof citizenslivingbelow thepovertylineby 2.4 %. Thesamestudyindicatedthatraisingthewagesto $ 10 per hourwill reducethenumberof poorworkersby 4.6 million andincreasetheincomeof peopleat the10th percentile by at least$ 1,700. Therefore,minimumwageis an effectivetoolthat can be usedto fightpovertyandenhancethestandardof living.

Inconclusion,minimumwageis an effectivetoolthat thegovernmentcan useto regulatethelabormarketin thetwenty-first century.Theminimumwagepolicybenefitsall thestakeholders, includingemployees,government,employers,andthetaxpayers. Minimumwagereducespovertyamong employeesandenhancestheir livingstandards.Employersbenefitbecauseminimumwagemotivatestheir employees,which thenincreaseproductivity.In addition,minimumwagereducesdemandforvariouspubliclyfundedservices(suchas foodstampandrent assistance),which reducesthetaxburdenon citizens.In essence,a welldesignedminimumwagepolicybenefitsall thestakeholders andshould be usedto addresslaborchallengesin thetwenty-first century.

References

Coppola,F. (2014, January 13). Why we need a minimum wage. Forbes.Retrieved March 28, 2015, fromhttp://www.forbes.com/sites/francescoppola/2014/01/13/why-we-need-a-minimum-wage/

Konczal,M. (2014, January 4). Economists agree: Raising the minimum wagereduces poverty. Wonkblog.Retrieved March 28, 2015, fromhttp://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/04/economists-agree-raising-the-minimum-wage-reduces-poverty/

NationalEmployment Law (2014). Thebusiness case for raising the minimum wage.New York, NY: National Employment Law.

Root,N. (2014). Theadvantage of minimum wage.Santa Monica: Demand Media.