The minimum wage theory has always been under scanner for its long term implications. Still it finds support with the world leaders. The reason cited by the supporters of minimum wage is the welfare of the workers as it stops worker exploitation. Economists state that with increasing inflation, minimum wage limit should be set by the government. Recently USA revised its federal minimum wage level to $9.32 per hour in January 2014. But the market has shown opposite outcome of the minimum wages. The increasing wage level leads to unemployment as the firms try different ways of increasing or maintaining their output even after cutting down of the workforce. Seattle in USA is an example; Seattle has a minimum wage level higher than places that are just ten miles away. This has lead to losses for the shops at Seattle as they have to pay more to workers while the areas nearby are paying less for same work.
Some economists argue that the employment scenario was better earlier; as all workers who were not skilled or lacked experienced got jobs. The minimum wage zeroes their chances of getting work because of inexperience. At times fresher’s work for low wages to make some money and get experience so that in their next job they can ask for a raised salary. The minimum wage has ruled out all chances of such fresher’s or students getting a part time job. Many countries like USA and Britain are live examples of such grim situations where there is massive unemployment and downsizing of companies. The economy of Switzerland is a contrast where the unemployment rate is below 2% with no minimum wage limit. The economy is growing and people have excellent standards of life; this economy questions the validity of the minimum wage theory.
The worst sufferers of minimum wage are the minorities, millions of unskilled or semi skilled people work in foreign countries. The leaders use the minimum wage as a tool to reduce any chances of an immigrant getting a decent job and increase the chances of racist conflicts. Besides minorities the young workforce faces similar dilemma, about 8%of Americans under the age of 24 do not qualify for a minimum wage and end up being unemployed. As most governments do not get a clear mandate, they have to surrender to the illogical demands of their supporters just to keep them satisfied.
Labor Unions advocate minimum wages as it keeps the Non Union workers out of competition and work. The world summits and conferences aim to decrease unemployment and provide work to the jobless. But economies end up increasing the minimum wage limit and it proves to be counterproductive in the war to eradicate poverty. When the US government raises the wage rate from $7.25 to $ 10.10 an hour; a single mother of one child faces a marginal tax rate of 91%. According to estimates any increase of 10% in labor cost in USA is followed by a 3% decrease in the workforce. The most affected are the unskilled workers and disadvantaged adults who have to support their families. If the government really wants to reduce poverty it should restructure the welfare state and reduce the disincentives for the workforce. It’s not logical to expect the people to work for longer hours when faced with additional tax rates.
- Sowell, Thomas. “Minimum Wage Madness.” Sept. 17, 2013.Retrieved from.http://jewishworldreview.com/cols/sowell091713.php3#.VGl1C2fD6gI
- Sherk, James. “What is Minimum Wage: Its History and Effects on the Economy” June 25, 2013.Retrieved from.