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What are the positions on a minimum wage? Show more Show less
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A minimum wage, which sets the lowest legal wage a company can pay its workers, is designed to prevent exploitation. Its backers argue the pros, including guaranteeing low-income workers a liveable wage, outweigh the cons. But who really benefits from a legally mandated minimum wage?

The minimum wage is good for workers Show more Show less

A minimum wage benefits workers by lifting them out of poverty and fueling job creation.
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The minimum wage creates jobs

The minimum wage is designed to ensure all workers are paid fairly. The minimum wage puts more money in people's pockets to buy more products, driving up demand, and prompting employers to hire more employees to keep up with demand.

The Argument

In theory, minimum wages ensure workers earn decent income which they use to pay off their expenses, and what is left over is reinvested into the economy. This reinvestment translates into a greater demand for goods, which raises demand and prompts employers to create more jobs to keep up with growing demand. While some argue that the minimum wage leads to job loss when businesses cut jobs because they cannot afford to employ more at the minimum rate, proponents for minimum wage argue otherwise. Economists David Card and Alan Krueger [1] ran a natural experiment to test this theory in 1993, the effect of New Jersey's raising the minimum wage on employment in the fast-food sector, compared to Pennsylvania which did not raise wages. Card and Krueger found no evidence to suggest that raising wages lead to rising unemployment. On the contrary, they found that where wages rose so did employment. In 2013, economist David Cooper at the Economic Policy Institute [2] proposes that raising the minimum wage would trigger a pay boost which would in turn lead to an economic boost capable of spurring job creation. The minimum wage protects employees by preventing employers from setting their own pay rates which would be kept low to maximize profits. Because employers must pay employees a minimum wage which reduces business profitability, employers look for other cost-cutting measures. Proponents of the minimum argue that if a business cannot afford to pay its employees a minimum wage then the business is fundamentally flawed and should not be in operation. Jobs will be created where a business is successful. Proponents argue that where a business is viable, the minimum wage will lead to job creation because businesses will look to other channels of making ends meet, like reducing hours or non-wage benefits. Proponents of the minimum wage focus most on the employment aspect as a way to create jobs, but it is important to understand that job creation can have other economic consequences. [3] A common outcome is a shift from one full-time job to two part-time jobs that do not come with non-wage benefits. Therefore, while jobs may be created by the minimum wage, it does not automatically guarantee better economic outcomes on the personal or national level.

Counter arguments

This economic model is logical, but it is not universally applicable because not all businesses are profitable enough to justify hiring additional workers which will reduce profits. Opponents of the minimum wage instead argue that forcing employers to pay the minimum wage as opposed to setting their own rates undermines their profitability. As a result, businesses that can’t afford to pay minimum wage must cut jobs in order to remain in business and/or maximize profits. Rather than hiring more, some businesses will adjust operations to save money. Adjustment strategies include switching to mechanized labour, raising prices or implementing reductions to working hours, non-wage benefits or training. [3] This is done in order to drive down running costs which in turn keeps prices competitively low, and therefore popular. This is traditional economic thinking and it predicts that minimum wage regulation raises the cost of labour which reduces demand for it. Employers are more inclined to cut payroll rather than risk profit loss.

Proponents

Premises

[P1] Workers earning a minimum wage will be able to make enough money to live on and reinvest excess back into the economy. [P2] Having an established minimum wage creates more market demand and in turn more demand for labour.

Rejecting the premises

References

  1. https://www.nber.org/papers/w4509#:~:text=David%20Card%2C%20Alan%20B.,Krueger&text=On%20April%201%2C%201992%20New,the%20rise%20in%20the%20minimum.
  2. https://www.epi.org/publication/raising-the-federal-minimum-wage-to-15-by-2024-would-lift-pay-for-nearly-40-million-workers/
  3. https://www.cepr.net/documents/publications/min-wage-2013-02.pdf
This page was last edited on Sunday, 7 Jun 2020 at 20:13 UTC

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