Raising the minimum wage
The minimum wage is a critical issue in businesses worldwide. An increase in the minimum wage can create a ripple effect throughout organizations and the economy, which can be either positive or negative. These effects are mostly present in a small number of industries, such as retail, home health care, restaurants, farming, security guards, and nursing care homes (Decker, 2019). As a result, state and federal governments should set legislation that has the lowest level form of numeration for employees based on the average cost of living.
However, with the rising levels of inflation, the minimum wage has not been updated accordingly. As a result, many employees are living impoverished lives below the poverty line. An increase in the rate would significantly raise the standards of living for the workers hence reducing poverty in low wage states. Reich (2019) indicates an increase to $15 minimum wage will spark economic growth due to improved purchasing power. Consumers will spend more money if they have the more dispensable income to support their families. Raising the minimum wage increases worker productivity and work ethic increase when employees believe they are paid a fair wage.
On the other hand, minimum wage jobs have the highest turnover rate. This situation can be very costly to the employer due to the constant hiring and training of new employees. A raise will ensure that workers stay with an employer longer. As the economy becomes tighter, it becomes very challenging for companies to fill the low paying positions (Paul, 2018). Besides, frequent turnover can lead to safety issues, especially in industries such as aviation, food safety, and transportation. Higher wages boost better performance by the employees and hence, more secure workspaces. Higher wages lead to lower employee turnover, resulting in reduced recruiting and training costs. An analysis by the Center for American Progress estimates that the cost of replacing low-wage workers is equal to about 16 percent of the employee’s annual salary. A 2012 study by Arin Dube, William Lester, and Michael Reich concluded that increases in the minimum wage can reduce turnover substantially, leading to savings in turnover costs. Raising the minimum wage reduces absenteeism. When workers earn higher wages they are absent from work less, leading to increased productivity. A 2010 paper from economists Laura Bucilia and Curtis Simon concluded that higher minimum wages are associated with lower rates of absenteeism for reasons other than illness.
Well paid workers rely less on government safety net programs. According to Reich (2019), an increase in the minimum wage is beneficial as it reduces poverty, child neglect issues, and improves children’s access to education. Besides, there is also a reduction in the cases of absenteeism from work due to health conditions, better mental health, and lower adult suicide cases. A healthier population directly translates to a productive economy.
One of the most significant risks of raising the minimum wage is the resulting strain on companies. Once the firm’s labor costs go up, employers might be forced to lay off some of the workers or invest in automated processes and technology to make profits (Paul, 2018). Small firms will become uncompetitive and be pushed out of businesses if they can’t afford the wage costs. Consequently, companies will be forced to put a halt to new hirings, which renders college graduates unemployed. For the existing employees, there may be little or no salary increases.
Furthermore, when the wages go up, prices go up according to the classical theory. Companies will pass the burden of the high costs to the consumers by increasing the prices of goods. This move would raise the cost of living and increasing poverty levels. With a reduced purchasing power, workers are not able to take care of their families and meet their daily needs requiring further wage increases. Raising the minimum wage for employees can change their lives Economists track wages closely because of their wage push inflation effects. Additionally, any wage increase that occurs will increase the money supply of consumers. With a higher money supply, consumers have more spending power, so the demand for goods increases. An increase in demand for goods then increases the price of goods in the broader market. Companies charge more for their goods to pay higher wages, and the higher wages also increase the price of goods in the broader market.
In conclusion, the trickle-down effect improves the living, health, and economic conditions of the individuals, their families, and, eventually, the economy. Though this program helps a few people in the organization, it significantly reduces the burden on the government by cutting down dependency costs. Increasing wages is the first step in reducing the inequalities in society. Therefore, companies should have a comprehensive plan for periodic wage increases for its workers.
Decker, F. (2019). Problems with Minimum Wage. Retrieved from https://smallbusiness.chron.com/problems-minimum-wage-2692.html
Paul, K. (2018). 5 unexpected ways raising the minimum wage can change your life. Retrieved from https://www.marketwatch.com/story/5-unexpected-ways-raising-the-minimum-wage-helps-workers-2018-10-03
Reich, M. (2019). Likely Effects of a $15 Federal Minimum Wage by 2024. Retrieved from https://irle.berkeley.edu/likely-effects-of-a-15-federal-minimum-wage-by-2024/
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