Effects of Raising Minimum Wage Essay Examples & Outline

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Effects of Raising Minimum Wage on Economic Performance


In the recent past, the attention of the Americans and the economic opinion makers has been on the ever-widening gap between the rich and the poor. Prevalence of income inequality has grown to alarming rates (Mărginean and Chenic, 92-102). The main reason for the development is the soaring incomes at the top. However, the government and other policy makers failed to consider the low-income earners.

The neglect coupled with the increase in salaries for the managers and other officials at the top of the organization has culminated in the status quo. Increasing the minimum wage has been proposed as one of the effective ways of dealing with the issue (Sloman and Sutcliffe, 47). The move aims at reducing the wage differences by increasing the lowest pay for all the workers in the United States. The paper will evaluate the efficacy of the move with the aim of displaying its apparent gains.

Increment of the minimum wages from the previously established $7.25 to $9.80 in an incremental phase was deemed the ideal approach. Indexing the wages as per the inflation level is also important since it leads to the development of the capacity of the worker to conform to the prevailing economic performance. Tipped minimum wages also has to be increased from the minimum of 2.13 per hour, which was the set rate in 1996. The tippled minimum wages has to reach 70% of the existing minimum wage. The introduction of the minimum wages bills peaked in the aftermath of the global recession (Mărginean and Chenic, 92-102).

Raising the minimum wage will help in the alleviation of the recovery of the workers that were still suffering from the recession (Mărginean and Chenic, 92-102). This is the social argument for the raise in the minimum wage. From the economic perspective, raising the minimum wage will result in a demonstratively positive effect on the performance of the entire economy. The increment in the wages will result to increase spending. The more the people spend the better the economic performance due to the increase in gross domestic product.

The slight change in the minimum wages will affect the wages of over 28 million workers. The increment will represent over 40 billion raise over the incremental period. The wages earned will lead to the improvement of the block’s spending power (Mărginean and Chenic, 92-102). Therefore, the workers will be in a position of spending more hence increasing the gross domestic product. The resultant increase in the gross domestic product during the period of the increment will be 25 billion.

The improvement in the gross domestic product will lead to the development of the over 100,000-employment opportunity since the more the people spend the more the firms have to produce. Labor s one of the factors of production (Samuelson and Nordhaus, 51).

The increment in wages also has a demographic aspect. Increasing the minimum wage to benefits workers in different proportion dispelling the common notions of the minimum wage workers. The affected workers in terms of gender, race, age, ethnicity and other demographic characteristics differs from the common paradigm when thinking of the workers in the minimum wage bracket. The first increment of 0.85 will affect 13 million worker in a direct or indirect manner (Holtz-Eakin, 73-96). The second incremental raise will lead to the increment of the number of workers affected to 20 million (Mărginean and Chenic, 92-102). The third incremental raise in income will make the number raise to over 28 million.

The raise in the minimum wage will affect both men and women. However, the effect on women will be disproportionate. Women comprise 54.5 % of the working population. Therefore, the program ought to follow the same pattern (Mărginean and Chenic, 92-102). However, the women are not as well affected. The effect of the program on the women ranges from below fifty percent in some states to above sixty percent. Therefore, there is not equal distribution of the income. However, women will still be beneficiaries of the program.

The immediate effects of the increment in the lowest wages will be the increased income and spending power of the workers in the low economic brackets (Bernstein, 73-96). However, the effects of the move will transcend beyond the mere increment in the wages to the attainment of a steady economic growth. The benefits that the program brings about are in excess of the aforementioned growth in the incomes of the workers (Mărginean and Chenic, 92-102).

Increasing the minimum wages could lead to the creation of jobs across the nation (Holtz-Eakin, 73-96). Just as the tax breaks for the middle-income earners, the increment in taxes will lead to the extra disposable income in the hands of the working families (Mărginean and Chenic, 92-102). Extra income augments the spending power of the working families. This is desirable since the more the people spend the higher the economic growth.

Another advantage of increasing the minimum wage comes from the high propensity of the low-income earners spending whatever extra income they receive (Mărginean and Chenic, 92-102). Therefore, they will form a substantial part of the demand for the products. It will also increase the general demand for the products in the nation hence increasing the production rates. Increased production leads to the demand for more factor of production. Demand for Labor as a factor of production translates into more employment opportunities (Parkin, Powell and Matthews, 81).

In addition to the direct gains of the increased spending power of the lower bracket workers, there is a likelihood that there will be other indirect income generated. For instance, when the people spend more, there will be a requirement that the workers spend more working hours. Putting in overtime will lead to the attainment of more income. The income forms part of the indirect earnings that the increased wages result in.

Projected raise in the consumer spending is important for the economy. One of the main factors holding back the organization s from hiring is the low consumer demand. With the increment in the lowest wages and the propensity of the low-income earners to spend any extra income, the economic performance will increase and the companies will be at a better position to hire new labor in fulltime and part-time basis (Mărginean and Chenic, 92-102). The boost is small compared to other economic stimulus programs. However, the effect is still significant and it ought to create the desired results.

In order to show that the minimum wage raise will be beneficial, it is important to focus on the stimulating effects of the wage raises (Krugman and Wells, 49). The minimum wage results from the employers. Therefore, it is important to come up with a multiplier to show the multiplied effects on the economy (Bernstein, 73-96). Focus on the multiplier effect indicates that the move has far-reaching effects on the performance of the entire economy.

The raise of minimum pay is important more so in the period of economic downturn. In the current period, the entire performance of the economy is hampered by the different factors such as the increased unemployment (Mărginean and Chenic, 92-102). This means that the employers have access to cheap labor given the increased labor supply in the economy. Therefore, there is no incentive to the employers that makes them pay better salaries. This unique issue calls for the inclusion of the employers in the debate. It also calls for an order setting the wage level since the market forces are more likely to place it in the lowest levels possible.

In conclusion, wage increment for the minimum wage workers is called for as a means of ensuring that there is increased economic performance (Mărginean and Chenic, 92-102). Focus on the development of the minimum wages in the lowest income group is important since the group is more likely to spend. The more the workers spend, the higher the demand hence the improvement in the gross domestic product.

Work cited

Bernstein, Jared. “Would raising the minimum wage help the economy?:  Pro.” “Minimum Wage.”  By Barbara Mantel. CQ Researcher 24 Jan. 2014:  73-96. Web. 30 July 2014
Holtz-Eakin, Douglas. “Would raising the minimum wage help the economy?: Con.” “Minimum Wage.”  By Barbara Mantel. CQ Researcher 24 Jan. 2014: 73-96.  Web. 30 July 2014.
Krugman, Paul R, and Robin Wells. Economics. New York: Worth Publishers, 2006. Print.
Mărginean, Silvia, and Alina Ştefania Chenic. 'Effects Of Raising Minimum Wage: Theory, Evidence And Future Challenges'. Procedia Economics and Finance 6 (2013): 96-102. Web.
Parkin, Michael, Melanie Powell, and K. G. P Matthews. Economics. Harlow: Addison-Wesley, 2000. Print.
Samuelson, Paul A, and William D Nordhaus. Economics. New York: McGraw-Hill, 1985. Print.
Sloman, John, and Mark Sutcliffe. Economics. Harlow, England: Prentice Hall/Financial Times, 2003. Print.