How Minimum Wage Policy Encourage Productivity

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The minimum wage policy has been identified as one of the key goals of ensuring a fair wage for low-wage workers in the country, reducing inequality in the labor standard labor 2030 sustainable development agenda, and promoting specific work for all women and men. The minimum wage is the bottom line of legally-mandated hourly wages, under which exempt workers cannot live modestly.

According to Investopedia, and the Department of Labor, USA, the minimum wage is the base compensation that nonexempt hourly workers are required to receive by law. As of 2022, the federal minimum wage in the US is $7.25 per hour. The minimum wage can be determined by states and local governments, but it must be higher than the federal minimum wage in order to be considered. As of December 19, 2018, the minimum wage is above the federal minimum wage in 29 states and the District of Columbia. International data on the one hand shows a negative correlation between union density and labor relations quality and minimum wage state control.

Who is covered by the federal minimum wage?

Most workers employed in the United States are subject to the minimum wage. Minimum wages of employees of any business or enterprise with a total annual sales or business of at least $ 500,000 dollars and employees of any business participating in interstate trade. Also, employees of the federal, state, and local government agencies, hospitals, schools, and most of the housemates must.

Some exceptions apply to young workers, full-time students, students, and workers with disabilities. Further, the minimum base wage for hourly workers advised is 2.13. If the base wage does not add a regular minimum wage on the basis of a worker’s given age period plus, then the employer must pay the difference; However, these requirements can be difficult to implement.

Who is paid the minimum wage?

In Labor, according to the Bureau of Labor Statistics (BLS), 1.8 million workers earned wages below or below the federal minimum. About half of these workers are over 25 years of age, and a third have worked full-time.

Women were more likely to have minimum wage jobs than men, and blacks were more likely to have minimum wage jobs than other races and ethnic groups. About 70 percent of those living below or below the minimum wage were in the service industry and about 16 percent were in sales or administrative support.

Minimum wage history

The minimum wage policy has been identified as one of the key goals of ensuring a fair wage for low-wage workers in the country, reducing labor inequality. The first United States minimum wage was established under the Fair Labor Standards Act of 1938. Since then, Congress has increased the minimum wage by 22 times and changed who is under it.

Since the minimum wage is not automatically adjusted for inflation, its real (inflation-adjusted) standardization growth falls in the years – as it did in the 1980s when the real value of the wage floor dropped 30 percent in the 1990s (20 percent reduction).

And after 2009 (14 percent and falling). The minimum wage is the national decrease in the purchasing power of the living standard of the minimum wage workers. The minimum wage for workers and non-management service workers in the minimum-collar industry is about 30 percent of the average wage.

The economic impact of raising the minimum wage

According to the general supply and demand theory, employers can respond to the minimum wage increase:

Recruit fewer workers,
Reducing the number of hours their employees work,
Higher customers in the form of higher prices and/or
Absorb some of the costs of higher wages in the form of lower profits.

Beyond the general supply-and-demand theory, raising the minimum wage can encourage businesses to operate more efficiently and to work harder. Employers can look for ways to increase productivity, such as setting higher performance standards for their employees or investing more in employee training.

A higher wage can motivate workers to work harder because they feel that they are being paid a fair salary and lost in dismissal. This combination of skills improvements for both the employer and the employee can reduce job turnover, reduce the cost of hiring employers, and lead to employment gains.

Theoretical solos do not tell us how large any of these effects are and the direction is unclear. Indeed, empirical studies show that the effect of increasing the minimum wage on employment has historically been somewhat negative, trivial, or sometimes even positive.

The Congressional Budget Office (CBO) estimates that low-wage workers, as a group, earn more from wages than to reduce employment. The same can be true for most individuals if the employment decline spreads widely over the low-wage population.

Value of minimum wages: The minimum wage policy has been identified as one of the key goals of ensuring a fair wage for low-wage workers in the country, reducing labor inequality. (image source)

Initiatives for increasing federal minimum wage

The minimum wage policy has been identified as one of the key goals of ensuring a fair wage for low-wage workers in the country, reducing labor inequality. The previous government of the US proposed raising the minimum wage to 28, and since then has taken action in six states and Washington, DC. Congressional Democrats have also introduced bills to increase that. These proposals will raise wages in a number of increments and index them in inflation.

A bill by Senators Bernie Sanders (I-VT) and Representative Bobby Scott (D-VA) would raise the minimum wage over several years, but would generally tie it to wages (median) instead of inflation. The bill would raise the minimum wage for people with disabilities and gradually reduce the wages of subordinate workers for consulting staff.

Proposals like this will eliminate the need for periodic erosion of the minimum wage price and periodic, potentially controversial legal disputes to recover it. These national debates have been a feature of the minimum wage since the beginning. The Trump administration has no official position on the minimum wage, but President Trump’s head of the National Economic Council, Larry Kudlow, has said that the federal minimum wage is a “terrible idea” and he will not personally work with Congress. Democrats to pick it up.

The 2030 Sustainable Development Agenda, adopted by the United Nations in 2015, has been identified as the main goal of reducing inequality and promoting specific work for all women and men.

17 Sustainable Development Goals (SDGs) seek to balance the three dimensions of sustainable development: economically, socially, and environmentally.

Goal 8 calls for “sustainable, inclusive and sustainable economic growth, full and productive employment, and good work for all” and highlights the importance of achieving equal pay for equal value work and protecting labor rights.

The goal is to “reduce inequality within and between countries” andand to achieve greater equality, with an emphasis on raising incomes, eliminating inequalities, as well as policies, especially revenue, wage, and social protection policies, below the population of 10.

Well-planned and effective minimum wages can contribute to these objectives. They can help ensure “a fair and equitable share of the fruits of progress for all,” 1 and “a minimum living wage for all employed and this national security is required”.

On the contrary, well-designed minimum wages can jeopardize the well-being of workers, reduce effective implementation, and encourage informality.

Current policy guidelines are based on the current ILO labor standards, the latest review of national laws and practices adopted in the ILO, 3 as well as years of experience involved in the context of ILO collaboration with governments and social partners worldwide.

The guide reflects the diversity of international practices and the different choices that can be made, depending on national preferences and the situation of the country. It does not try to promote a single model in all countries. It, however, emphasizes the key principles of good practice and provides examples of the benefits and effectiveness of various policy options.

Everyone Fights over $15

According to the Harvard Political Review, fast food employees are battling for a $15 minimum wage. This title seems uncannily contemporary, yet it really refers to a 2015 paper that appeared in the Harvard Political Review. Although the campaign for fair pay has been ongoing for a century, it remains one of the most significant conflicts in the United States.

At first look, it appears that $7.25 an hour is insufficient for survival, indicating that the minimum wage has to be increased. But a quick estimate would not accurately reflect the complexity of this economic issue. Raising the minimum wage is necessary to keep the economy and nation growing, but it is crucial to be aware of the dangers involved in doing so in order to make wise policy choices.

An Old Encounter

It is not a new battle. The Fair Labor Standards Act of 1938 created the first federal minimum wage. This statute signaled a shift in American labor policy, which had earlier fueled inequality and the Great Depression’s economic collapse. It set a minimum wage as well as regulations on child labor, a 40-hour workday, overtime pay, and the need to record all of this data for compliance purposes.

The minimum wage has changed 23 times since that period. Congress raised the minimum wage to $7.25 in 2009, an increase of 70 cents over the previous minimum pay of $6.55. This was the most recent rise. The beliefs that gave rise to the FLSA have persisted into more recent years. The House approved in July 2019 to raise the federal minimum wage to $15 per hour by 2025, 81 years after the FLSA was passed. Republicans agreed that a raise was necessary even if this plan was defeated in the Senate; nevertheless, there is still dispute on how much. The ongoing discussion reflects how slowly different political factions are coming around to the approach.

President Biden issued an executive order in April 2021 increasing the minimum wage paid to government contractors to $15 per hour, saying that “no one should work full-time and yet live in poverty.” This was much more recently. Although this modification mainly serves to keep federal employees out of poverty, the effort to increase the minimum wage nationally is gaining momentum. The Pew Research Center found that 62% of American people now support increasing the minimum wage. This government rise is only a result of the rising push toward concretizing this next FLSA step.

Putting the Blinders Off

Although it has been done in the past, increasing the minimum wage can have unfavorable long-term economic consequences. These worries span a wide spectrum, from the impact of inflation to potential harm to those who lose their jobs. Politicians must be mindful of these potential repercussions and keep them at the forefront of their minds when they develop minimum wage policies.

One worry is that inflation would rise if the minimum age is raised. Let’s say I run a business and I choose to launch Donuts4All, my own donut-selling enterprise. I employ five people, pay them each $10 an hour for 40 hours per week of labor, and pay a total of around $8,000 each month to fund their donut-making. The cost of labor would suddenly increase to 1.5 times what it was previously if the minimum wage were raised to $15 an hour, costing me about $12,000 a month in labor. I would have to make adjustments for this as the employer, but how?

I can sacrifice part of my earnings and donate it to my staff if I have enough of it. However, I might need to increase the price of my doughnuts if I’m having a horrible year. This means that the milk may cost $4.40 rather than $3.82 when my staff, who are now paid $15 per hour, purchase at Walmart. Think about all the goods you need to buy seeing a price increase like this. In practice, this implies that the additional money I give my employees as a result of their salary rise will be offset by increased pricing, putting my employees in the same financial situation they were in before the raise.

What if my company had previously increased prices and was in a perilous situation as a result of spending less money, employing fewer people, and hiking prices as high as they could go? Raising the minimum wage might increase operating costs if the company currently operates on a shoestring budget. The owner is then faced with a dilemma: should I file for bankruptcy, try to keep the business open, or close it down?

The first choice can ultimately result in the closure of the company and leave the owner in debt. The second choice puts the company in a very challenging situation. The third alternative then results in the closure of the company. Everybody involved loses their job and income in two of the three scenarios. A greater minimum salary is ineffective if you are unemployed. Imagine doing this on a far larger scale – 48% of the workforce is employed by small enterprises. That may seriously hurt a lot of employment. In a time of economic unpredictability like the one the nation is currently experiencing, it would be much more harmful.

It might also raise unemployment by promoting job offshoring. Lower salaries were identified as one of ten factors contributing to American companies hiring workers abroad in a Billshrink poll. As a result, if we raise the minimum wage, American companies could be scared of transferring their manufacturing to China or other nations with more affordable labor markets. Around 14.6 million Americans were employed by U.S. affiliates abroad as of 2019. There won’t be enough work for Americans if we keep exporting jobs to other nations.

Risks Related to Minimum Wage Reduction

These are very real and deadly problems associated with raising the minimum wage, but they may be reduced or avoided with the right understanding and information. For instance, gradually increasing the minimum wage might significantly lessen inflation’s consequences. According to working research by the Upjohn institute that followed the relationship between price rises and minimum wage hikes in several U.S. states from 1978 to 2015, prices only increased by 0.36% for every 10% increase in the pay floor.

Additionally, the price increases often occurred only in the month following the implementation of the higher minimum wage, not before or later. When the minimum wage was raised from $5.85 to $7.25 in July 2009, this concept was put into practice. It was hiked to $6.55 before rising to $7.25 rather than leaping right away. As a result, the economy, which was still recovering from the 2008 financial crisis, was able to rebound, and by the middle of 2010, inflation had stabilized.

The argument that raising the minimum wage will harm small companies misses some of its benefits. Yes, labor costs will increase. But historically, raising the minimum wage also results in more local expenditure. Future assistance for small and medium-sized firms will come from local expenditure combined with increased government assistance for small businesses. Additionally, it is common for minimum wage increases to take place during recessions like the one the United States is presently experiencing. Our economy may benefit from this.

It is reasonable to be concerned about outsourcing because one of the reasons companies export American employment to other countries is the lower pay. That opportunity is created by raising the minimum wage, but it also boosts the economy and gives people more purchasing power. Therefore, even while it may increase the cost of labor, it might also result in a nation that spends and consumes more, which would enable businesses to increase their profits.

Increasing Return

Although these issues are grave, there are also advantages and remedies that outweigh the negative aspects of this initiative, making an increase in the minimum wage a net beneficial policy change. The drawbacks of this undertaking are largely related to general economic issues, but frequently the more personal benefits of receiving decent pay can exceed the possible hazards.

First of all, it may increase productivity and encourage learning and personal development. Research by Georgetown University professor and Nobel winner in economics George Akerlof and other economists found that when workers feel like they are being paid fairly, their morale and work ethic rise. This implies that raising salaries will enable companies to acquire more work from their workforce.

You might see how this increase would improve your happiness, productivity, and ability to serve customers. A person has more time to devote to their education and health when they can easily subsist on one job. People are more invigorated at work when they get enough sleep, spend time with their loved ones, and exercise. These characteristics of successful employment need to be the norm rather than the exception.

The increase in the minimum wage will also lessen economic disparity. The federal minimum wage at the moment is $7.25 per hour. One may quickly calculate that someone working 40 hours per week earns around $15,000 annually (assuming they only work one job). That barely takes them above the $12,880 poverty level for a person living alone. One accident, injury, or unanticipated expense might be enough to ruin someone.

Encouraging part-time jobs

Of course, it is possible for people to have two or more full- or part-time jobs, as do over 13 million Americans. But maintaining a workweek of 60 or 80 hours is a remarkable effort that has a significant cost. By increasing the minimum wage, people will be able to support themselves with only one job. People can devote more time and resources to their personal life when they don’t have to manage several occupations. To keep themselves or their families out of poverty, workers shouldn’t have to hold down two or three jobs.

Final thought

A higher minimum wage will result in fewer employment changes. In research by economist Arindrajit Dube and colleagues, it was shown that those who are earning a fair income are more likely to remain in their current position than to go for one that pays more. This level of job security contributes to the stability of life for both the employees and the company owners who employ them. People who earned $60,000 or less were changing occupations more often even before the epidemic. They actually quadrupled the amount they moved between 2017 and 2019. I would contend that knowing your staff will show up each week makes it much simpler to operate a business.

Although there are significant dangers associated with raising the minimum wage, doing so is still feasible and may even be advantageous for American workers with the right understanding and legislative adjustments. Politicians frequently become bogged down in the debate over whether or not action should be done; some argue that taking action puts Americans at risk, while others believe that taking no action has the same effect. The emphasis is diverted from the more important issues of what reforms may most effectively assist Americans and how they should be implemented by this dualistic deadlock of action versus inactivity. Raising the minimum wage can be the first step in the process of breaking the political deadlock and innovating to enhance the American economy and, by extension, the standard of living for Americans.

The minimum wage policy has been identified as one of the key goals of ensuring a fair wage for low-wage workers in the country, reducing labor inequality. When it comes to setting the minimum wage, only social negotiation, and collective bargaining help balance the balance between the legitimate needs of both workers and enterprises.