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Minimum Wage
Nikole Guyton
ECON&202
Renton Technical College
Winter Quarter 2019
[Date]
Abstract
The working class is regarded as the key element in determining the economic condition of the economy. This is the reason, it is very crucial to know what the minimum wage is given to the workers to assess the standard of living in any country. The United States is recently facing some economic concerns related to the wage laws in different states. The purpose of this paper was to examine the impact of minimum wages on the national standard of living in the United States and to study in particular the Washington State in this regard. After critically reviewing all the reliable shreds of evidence, it was concluded that a living wage does not leave any adverse impact on the economy as a whole. There were more benefits driven by wage gain than from job loss in the states where they have increased the minimum wage above the federal level. A rise in minimum wage will provide the economic security to the working class. The states where minimum wages that increased the minimum payments on their own did not suffer significant job loss instead the health conditions were improved there leaving a positive on the living standards of its citizens.
Introduction
Matter of wages cannot be explicitly ignored when it is deciding the economic growth and employment rate for a country. For any country, it is essential to know what the minimum wage is given to its labors so that the standard of living can be assessed. The United States is recently facing some economic concerns related to the wage laws in different states. A bill was forwarded by the senator Bernard Sanders, of the 114th United States Congress in the 2015-2016 session. The bill was related to the rise in the minimum wage and emphasized the idea of the living wage for the Americans under the act of “Pay Workers a Living Wage Act." Congress didn't show much interest in this act, but many democratic politicians want to bring positive economic change in the labor market through this bill. The minimum wages on the federal level were last time increased to $7.25 in 2009, and since then there was not seen any rise in the federal minimum wages till now. However, some states have decided to raise the wage rate for the workers on their own taking many economic risks. Therefore, this paper will examine the impact of minimum wages on the national standard of living in the United States and will study in particular the context of Washington State in this regard.
Thesis Statement
A rise in the minimum wages will leave a positive impact on the national standard of living in the United States primarily for the Washington state. The two valid justifications for this statement are, it will take many Americans out from the poverty trap by providing economic security, and it will help them to afford the necessities more easily. A rise in the minimum wage will not hurt the employment level.
Research Objectives
Based on the analysis of the research paper, some research objectives are being made for a specific purpose. They are as follows:
To examine the impact of minimum wages on the national standard of living in the United States and particularly the Washington State in this regard.
To assess the economic risks that are associated with the increase in the minimum wage rate for the country and Washington State.
To recommend some effective measures based on the critical analysis of the wage impact.
Overview of Paper
The respective research paper consists of four sections majorly. The first section is introductory which introduces the research topic to the readers along with the research objectives the paper has. The second section is the literature review which studies the background knowledge behind this issue under consideration and the scholars' opinions on this matter. The third section incorporates the results of the research which will also answer the objectives. The fourth section is related to the suggestions which will be provided for future studies in this area. Currently, the minimum wage at a federal level is $7. 25 which is very less and has also named as the starvation wage.
Literature Review
There are many theories in economics that deals with the wages given to labor and their impact on the productivity level, population growth, economic growth, employment, profitability, poverty level and other key economic indicators. All of these theories have merits as well as the criticism due to their limitations which makes it harder for economists to support and defend one particular theory of wage. Labor market depends on many other factors as well apart from market forces. As far as the situation of United States is concerned currently, it is vital to first take a look at the economic history of the wages in the country.
Brief Economic History of Minimum wages in the U.S
The history of minimum wages goes back to the early 1900s when they were first enacted in 1904 by New Zealand which was followed in 1907 by Australia and then in 1909 by the United Kingdom. United States enforced the minimum wages in 1938 (Fair Labor Standards Act of 1938 (FLSA) while the rest of the world introduced those laws in their countries after World War II. Presently, almost all the countries have minimum wage policies which are fixed, they, however, vary from one another country wise. There was an economic justification behind the implication of those minimum wage policies which serves many of financial goals.
Initially, according to the standard model of perfect completion, the firms will give wages to the labors that are set by labor supply and any government intervention might reduce employment. But the employers in the modern labor market models started manipulating the labor market by placing wages less than the value of marginal products. So, the need for minimum wages aroused to prevent the abuse of the employer’s powers.
In the 1930s when the Great Depression, it became an alarming situation for the country and stabilizing the wages became the primary concern for all the American economists. They supported the idea of federal wage floor as it was something significant to be done at that time. They then passed the law of high wages for the workers arguing that the high wages will increase the purchasing power of the worker which will ultimately raise the economic growth level. However, the situation got reversed in the 1980s to lower the economic growth overall; real federal minimum wages were reduced 30 per cent during that period due to the shift in economic terrain. It fell to 32 per cent in 2006 and remained at 37 per cent in 2015, much lower than in the records. To compensate for the declining trend, some of the states voluntarily increased the minimum wages on their own, and almost 29 states raised their minimum wages above the federal level in 2015. The increases were moderate making a difference of a dollar or two from the national level of the minimum wage set by the government and affecting only the 5 per cent of the total workforce.
In this regard, many studies are undertaken in recent years to analyze the effect of minimum wage and their increase on different economic indicators. They will be critically reviewed.
Recent Literature related to the Impact of Minimum Wage
There is abundant research done on minimum wages, but the literature still lacks evidence on the extent to which the wage floor may affect employment. Meer and West (2016) performed research in this regard to assess the relation of wage floor with the work. They analyzed that the minimum wages will not affect the employment directly but through the fluctuations in economic growth (Meer and West, 2016). They took the data of the state-specific time trends by using three separate state panels of official employment data. In their analysis, they found out that the minimum wage left an adverse effect on employment and caused a reduction in job growth. These results were more prominent for the young workers and with industries with low wage workers (Meer and West, 2016).
Mishel, Bernstein and Schmitt (2016) in their book discussed in great detail the current state of the working class of America. They said that the declining trend in wages which was witnessed in the 1980s is still prevailing today and is leaving a negative impact on the standards of living of the Americans. Wage inequality has now affected the middle-wage earners too as low-wage earners in the past few years. Workers today now face more financial burden than ever before, and they along with their families suffer health insurance coverage due to low wages. The income inequality is increasing at high speed leaving a more significant gap between the economic classes pulling more people in poverty.
Another study was undertaken by Lenhart (2017) which investigated the relationship of minimum wages with the population health with the help of data analysis of 24 OECD countries for 31 years. The results showed that the high levels of minimum wages led to a more significant reduction in the mortality rates and the number of deaths. There was also an increase in life expectancy of 0.44 years (Lenhart, 2017). Increase in minimum wages helped in the decline of poverty and the provision of unmet medical needs.
Another study was done by Cengiz et al., (2018) for the state-level variation in minimum wages by taking the administrative data from Washington State and the employment effects were inferred. The results were concluded with no changes found in the number of low wage jobs. There was no evidence of unemployment with the higher levels of minimum wage which reflects that a rise in minimum wages does not cause any harm to the economy (Cengiz et al., 2018).
Research Results
Reviewing all the literature related to the issue of minimum wages in the light of the current economic position of the United States, some matters are intensely observed and critically analyzed. The world is growing at high speed with the elements of inflation affecting the lives of an ordinary man. Prices are, and the financial markets are changing the businesses. Based on this scenario, it is imperative to consider the living conditions of the lower and middle class as they are very vulnerable to economic changes. Currently, the minimum wage at the federal level is $7. 25 which is very less and has also named as starvation wage by many U.S senators (Kruger, 2015). This wage is not sufficient for the working class as they are unable to cover the healthcare insurance and improve their lives. Therefore, there is a desperate need to raise the minimum wage to a much higher level. All the pieces of evidence from the past few years in the literature showed that a moderate rise in the minimum wage would not negatively affect any aspect of the economy. Therefore, consideration should be made to provide the workforce with the living wage, not the minimum wage to give them more economic security. If raising the minimum wage to $15 per hour is not suitable for the government, then it should at least be uplifted to $12 per hour to facilitate the workers. Although FLSA benefitted the economy back in 1938, the economic conditions are very different presently (Reich, 2015). The states where minimum wages that increased the minimum payments on their own did not suffer significant job loss instead the health conditions were improved there leaving a positive on the living standards of its citizens (Leigh, 2016). Working class not only needs survival but a healthy lifestyle too.
Research Suggestions
There were few limitations to this research paper which requires further investigation in the future. Those limitations included the breakdown of per capita income as this measure cannot truly define the standards of living of all the Americans. This is because this measure is determined by the high productivity and total output per worker of the total population. And in that case, if the wages are low, families will keep on sending more members of their family to the workforce to attain certain stability which can also include the more extended working hours. Similarly, if the wages are high, fewer members will take part in the workforce which will reduce the employment level. There should be a separate study that investigates in detail the subjectivity of the standard of living in all the states.
Another limitation was lack of state-wise analysis in the present literature. There should be a thorough study which helps in analyzing all the states separately in the matters of minimum wage impact. This will also give directions to a much more effective economic policy in those states.
References
Cengiz, D., Dube, A., Lindner, A., & Zipperer, B. (2018). The effect of minimum wages on low-wage jobs: Evidence from the United States using a bunching estimator.
Krueger, A. B. (2015). The minimum wage: how much is too much?. New York Times, 20-2.
Leigh, J. P. (2016). Could raising the minimum wage improve the public’s health?. American journal of public health, 106(8), 1355.
Lenhart, O. (2017). The impact of minimum wages on population health: evidence from 24 OECD countries. The European Journal of Health Economics, 18(8), 1031-1039.
Meer, J., & West, J. (2016). Effects of the minimum wage on employment dynamics. Journal of Human Resources, 51(2), 500-522.
Mishel, L., Bernstein, J., & Schmitt, J. (2016). The state of working America: 1996-97. Routledge.
Reich, M. (2015). The ups and downs of minimum wage policy: The Fair Labor Standards Act in historical perspective. Industrial Relations: A Journal of Economy and Society, 54(4), 538-546.
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