Link to the main article: http://www.bizjournals.com/sanjose/news/2012/05/23/san-jose-puts-minimum-wage-hike-on.html?s=print
Minimum wage is often a controversial issue between the employees and employers; the employees looking for more high pay jobs and the employers unwilling to indulge in high wage expenses. This is such that most economists have argued that the relationship between minimum wage and employment is clear-cut and often leads to the destruction of jobs, while some argues that it is beneficial to the working class.
Economically speaking, wage rate influences a number of things. It adjusts to make the quantity of labor demanded equal to the quantity supplied. Companies are responsible in considering how much labor to demand or in simpler terms, hire. And so, with an increased minimum wage rate, the quantity demanded of labor for the firm decreases. On the other hand, the people are responsible for the supply of labor and thus with an increased minimum wage rate, the quantity supplied is increased. So with these two conflicting ideas, a change in minimum wage easily becomes a controversial issue.
It is reported that the San Jose people supported the proposal of raising the minimum wage to $10 per hour and the main reason is to increase their income. On another perspective, the wage rate is influenced by the economy. The influence is shown when there is a rise in price levels. As more people are not able to afford a higher cost of living with their current income, they will need a higher income to cope with their expenditures. This is where the labor union comes in. Employees would go on strike and force the government to impose a regulation to the market: price floor, which is also known as the minimum.
One setback to the raising of the minimum wage is that not everyone benefits from it. As for the companies, they tend to look for the easiest and cheapest way to earn profit. This is a common fact in the business world. So I think it does not come as a surprise that businesses would be dissatisfied with the minimum wage imposed in the labor market. As minimum wage rises, the cost of employing low skilled labor also rises. Thus, the company would be reluctant to demand more labor. This is because, as shown in the graph above, when the minimum wage rises above the equilibrium wage, the quantity of labor supplied overwhelms the quantity of labor demanded and so there is a surplus of labor. The equilibrium of the wage rate was at $8 per hour, but the government increases the minimum wage to $10 per hour. Here, the minimum wage is higher than the equilibrium of wage rate. As mentioned before, the government increases the minimum wage to keep up with the rising prices, or in broader terms, price patterns. Now, more people tend to look for work and so job search is increased. However, the equilibrium of quantity demanded of labor decreases as company is unwilling to employ more workers because of the higher wage expenses. The quantity supplied of labor is higher than the quantity demanded of labor. Hence, surplus of labor occurs.
Although the minimum wage is increased to $10 per hour, some companies would pay workers salary below the price floor. This is beneficial to the companies to earning more profits because of lower wage expenses. However, there is a government-imposed regulation, called price floor, which makes it illegal for companies to charge below a specified level. On the other hand, confronted with the surplus of labor or in other words, competitors for jobs, the job searchers are forced to accept the terms of the companies and receive a lower income. In this particular situation, the companies and the already employed workers are the ones who benefits while the job searchers are the ones who lose. With the surplus of labor on the rise, the minimum wage is interpreted as inefficient. However, on the brighter side, unemployment rate would decrease, as more and more people are able to find jobs.
With both perspectives on the issue of raising wage rate addressed, it is seen that minimum wage is unfair. The companies are confronted with the complications of price level patterns and surplus of labor and the discrimination inevitably comes in. Faced with the choice of choosing between the more skillful workers or the less skillful workers-and the salary is the same for both-any company would hire the former. Religion, races, and personal background may also come in the mix. Eventually, all these would lead to the big issue of unemployment. This is proved as the inefficiency of increased minimum wage and the one who suffer the most are the job searchers. Like so, minimum wage is unfair because the one who gain profit from it are the workers who are currently employed and have no need to search for a new job.
Despite the downside of things, unemployment for low-skilled workers can be reduced. I think one approach is to raise their skills so as to increase the chance for companies to hire them. Trainings and workshops can be held for the low-wage workers to help improve their ability and increase their productivity. This makes them more valuable to the employers and thus, the demand for labor easily increases. As shown in the graph above, when labor productivity increases, so will the demand for labor so the demand curve shift to the right. This makes the equilibrium wage rate rise and employment opportunities will eventually increase.
A raise in minimum wage have both its disadvantages and advantages. While it benefits the workers in general, the same could not be said to the job searchers or even the companies. Those people who already have jobs would only gain a higher income. For the companies, they will have to face an increase in expenses and a decrease in profits. Lastly, unless the job searchers fulfill the high expectations of the companies, most of them will not benefit from an increase in wage rate. The other downside to the minimum wage is that it does not address the core issues of low income but instead, the exploitation of newly hired workers. In short, all the minimum wage does is only to incur unemployment – its disadvantages more than its advantages.
Talk About Economics. 