The lowest wage permitted by law or by aspecial agreement is a country’s Minimum wage1. With a population of 7.6 billionpeople in the world of whom 2.5 billion live on less than $2 a day2. The cost of water in theUnited States of America comes up to an average of 1 cent for 1gallon of waterwhich is quite a proportion of income considering $23. This is the case in adeveloped nation. And that too in a nation with the population of 323.
95million4people, according to the WorldBank, which is less than quarter of the worldly population. However, much ofthe world is made of developing and less- developed nations with povertystricken areas that are more in number than the United States and they live inharsher monetary conditions thereby making the issue a globally tensing onethat requires immediate attention. Hillary Clinton, A successful businesswoman who stood for the presidential election in 2017 representing theDemocratic Party, in one of the democratic debates, had discussed her view onthe wage floor of $15. Initially, she claimed that if this bill were to pass,she would “of course” sign it. However, she later claimed that she would prefersigning a bill similar to the one passed on by the New York State which agreed on raising the minimum wage from$7.50 to $125according to .She said nothing further.
This confused listeners and many questioned herchange of mind. She then, in an interview with George Stephanopoulos, a formerwhite house congressman, Hillary took this opportunity to state her stance onincreasing the minimum wage as clearly as can be stated. She said, “if thecountry came out with a legislation (to increase minimum wage) then of course Iwould sign it.
” She agreed to sign the legislation provided that the countrywould check its economic well-being. Clinton had concluded her stance based onthe reference to legislation passed in New York to increase the minimum wage to$15, surrounding areas to $12 and upstate $12.50, provided that economicconditions were constantly being assessed. She quoted Bernie Sanders who saidthat the legislation was supposed to be considered a model for rest of the nationto increase its minimum wage6. This stance clearlysupports the idea of increasing the minimum wage. However what is the effect of such adecision. To establish these effects we can take the case of a dilemma that LosAngeles, California faced in the month of May, 2015.
‘The Washington Post’, anAmerican daily newspaper that is known for its particular emphasis on nationalpolitics, on May 19th, 2015, headlined ‘Los Angeles becomes thebiggest city yet to approve a $15 minimum wage’. A number of economistsassessed the effects of a higher minimum wage and had opposing views on theseeffects7. Mayor Eric Garcetti of LosAngeles estimated that 542,000 would receive a hike. Researchers from theUniversity of California-Berkeley, from a study, foresees nominal job losses,decreasing 0.2% of employment base would be further removed due to the highlyprobable 2.5% job growth in the city, annually. The final verdict of the studywas that a higher minimum wage would have more favourable than disadvantageouseffects. Looking at employment is extremely important as it contributes to anations GDP which, if grows, has attained a significant amount of economicgrowth.
However, an increased minimum wage cancontribute to dissuading employers from employing people, as, naturally, itwill increase their cost of production thereby increasing the price, reducingdemand and causing potential business failure. This was the stance of theChamber of Commerce who, inferred from their analysis that ‘Businesses mightchoose to locate in the suburbs to avoid pricier labour.’ It estimated 70.000to 140,000 job losses over the next five years (by2020) with a third of those losses influencing employees under the ageof 25.Where is the support for 1stperspective? Agreeing to the above perspective is DonaldTrump, the president of The United States of America, representing theRepublican Party had discussed his stance on the topic stating “I would not doit” when asked if he would increase the minimum wage, in the RepublicanPresidential debate. Coherent to this decision was Trump’s desire for theUnited States to become more competitive with the rest of the world, in whichcase, the minimum wages should be low or nil.
Accordingto the Washington post, in the Republican debate on Fox News conducted November10th, 2015, Trump voiced out his belief by saying, “our taxesare too high, wages are too high, everything is too high. What going to happen isthat people are going to start firing people.”8-9Trump says this in regard to the alreadyhigh taxes and wages of Americans that are adding costs to their products. Thiswould conclude as a high price on a product making the product less competitivein the international market, since reasonably priced goods are available in therest of the market. This would reduce profits of a number of businesses andincreasing the minimum wage would be a disincentive to employers to employpeople which would cause a high rate of unemployment.There are 9 countries without a federalminimum wage. These are, Iceland, Norway, Sweden, Finland, Denmark, Austria,Germany, Italy and Switzerland10.
It can also be observedthat few of these nations have some of the lowest unemployment rates. Accordingto the Euro stat, the unemployment rate of Iceland is 2.8% followed by Germanywith 3.6% then Norway with 4.2% of unemployment followed by Austria with 5.
6and Denmark with 5.7%. These Statistics were provided in an article by TimWorstall in an American Business magazine, Forbes. He says that Germany used tobe a country with high rates of unemployment and they overcame the situationthrough labour reforms to establish more low wage jobs in addition to providingsubsidies for low wage workers and now their unemployment rate reduced from11%-12%11 in 1950 to 3.
7% from 1980until the last time it was measured in November 2017 with negligible amounts offluctuations, give or take .1. As reported by BBC News, in Switzerland , It was planned to establish aminimum wage of 22 Swiss francs (about $25; £15; 18 Euros) an hour. The minimumwage proposal was rejected by 76% of voters. Supporters had argued it would”protect equitable pay” but the Swiss Business Federation said itwould harm low-paid workers in particular12.Agreeing with this perspective is David Neumark, professor of economics at theUniversity of California, Irvine.
In an interview with Here & Now’sJeremy Hobson, he said, “My view of the evidence is that by far the lion’sshare of it suggests that some job loss is from minimum wage increases, andthose job losses as we might expect are concentrated on the very least-skilledworkers.”13The viewheld by this professor figuratively takes on two perspectives. That is, theview that it affects low skilled people and the second being it only affects asmall, insignificant proportion of people, identified from the tone of what hesays. I believe that it does matter if the minimum wage is affecting the leastskilled workers since they are the vulnerable group of a population. This isthe main reason as to why supporters support minimum wage as they believe thatnot only is it based on equity, as per people who need money most, but alsosince everyone has enough money to access the basic requirements to survive.
Yetanother problem that comes up due to the absence of a minimum wage, is thereduction in the supply of labourers. Working and not receiving the moneyexpected by labourers can lead to an increase in the labour turnover percompany. If this is the case, as labourers are discouraged to stay within thelabour force. This will reduce not only employment, but due to an increasedrate of unemployment there will be lesser output, thereby reducing totaleconomic growth. For example, in China, Chinese provinces were raising theminimum wages due to lack of supply of labour. The inland areas of Henna,Shanxi and Ningxia unveiled an increase of minimum wage from 1,120 Yuan in 2010 to 2,190 Yuanin 201614.Additionally,if increased, minimum wages will increase the cost of production.
Thisincreases the prices of goods which could lead to inflation. A rising level ofinflation goes against a nation’s macroeconomic policy since it will lead tofurther unemployment an undesirable economic environment. A higher minimum wage would reduce governmentwelfare spending. Iflow-income workers earned more money, their dependence on, and eligibility for,government benefits would decrease.
The Centre for American Progress reportedin 2014 that raising the federal minimum wage by 6% to $10.10 would reducespending on the Supplemental Nutrition Assistance Program (SNAP, formerly knownas food stamps) by 6% or $4.6 billion15.
The EconomicPolicy Institute determined that by increasing the minimum wage to $10.10, morethan 1.7 million Americans would no longer be dependent on governmentassistance programs.
They report the increase would shave $7.6 billion offannual government spending on income-support programs. In my opinion, althoughminimum wage and employment may not have a cause and effect relationship, suchas a change in minimum wage will lead to s change in the employment rate, I dobelieve that there is a correlation amongst the two. And the difference betweenthe correlation between the two in different nations depending on whetherminimum wage exists or not is significant.
The unemployment rate in Germany, acountry without a legal minimum wage, is 3.9% as of August 2017, as per Euro stat,Bureau of Labour Statistic. The unemployment rate in Gabon is 28% and theirminimum wage is $324er month16. Althoughother factors may come into play with the rate of unemployment the patternobserved and focused on, in this case in the minimum wage. Considering all fronts, Ibelieve that a country should gradually reduce its minimum wage allowing gradualchanges and implement a progressive tax system evaluating and implementingaccording to the economic conditions at the time. In doing so problemsassociated with minimum wages would have a promised reduction to the problemsas it is gradually removed.
With that being said, there are many other economicconditions that contribute to employment rates that need to be evaluated whiledecisions on minimum wage are taken since there are countries with some of thehighest GDP such as, Luxemburg, which has a federal minimum wage. To conclude, minimum wageinfluences employment to a very large extent. All said and done, the research used in this essay is limited tosecondary research. There is scope for more research through the means ofprimary data, such as through interviews with people on low incomes or on theminimum wage and their daily spending to maintain a roof over their heads andto sustain a living.
This research will be more up-to-date and relevant data tocome to relevant solution to the problem. If this is carried out globally thenthe issue can be solved both locally and globally. (Scope for further research)