Increasing Federal Minimum Wage
The magnitude of the impacts of federal minimum payments has been a typical topic of discussion for years. Economic policymakers and academic researchers base minimum wage discussions in the context of poverty and increasing the wages.
However, critics argue that there are many adverse effects on small businesses and the general economy of the country. A rise in the nation payments will have impacts on the economy of the American states in which the increase in minimum wage law is binding. The paper provides a brief research analysis of the impacts of raising federal minimum wages to the economy of the United States and also to the small business enterprises. The recommendations on the research findings are also included in this work.
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How it works
There are various reasons as to why state governments may increase the minimum wages of the workers. The reasons mostly related to poverty levels and equality. However, before making any wage adjustments, the local governments should also consider the more substantial impacts of minimum wage ordinances in the aspect of economic growth. Economic development can be described as a sustained state effort to improve the states economy and the quality of living, through the availability of quantity and quality jobs as well as the long-term prospects of those jobs.
An increase in the federal minimum wages means that compensation will have to be availed at an increased pace compared to the speed at which inflation increases, hence leaving many workers lagging behind economically (Ehrenberg, & Smith, 2016). According to Gallup-poll economic research carried out in 2014, about 47% of the employees in the United States are paid an hourly wage of $7.5 hence costing the total labor force of the US a total of roughly 158.7 million. Of all the hourly employees, about 4.7% were paid a salary equal or slightly below the minimum wage.
Therefore, an increase in wages, for instance from $8 per hour to $15 per hour means an expenditure of approximately $41 billion per year. The gross domestic product would be 0.23% after tax deductions. However, increasing wages would increase the low-earnings household’s purchasing power hence lowering reliance on federal assistance programs such Medicaid, food stamps and housing subsidies. An increase would then strengthen consumers demand which drives the U.S economy.
Effects on small businesses
Increasing the federal minimum wage could imply a significant and extensive varying impact on small stores across the United States. Low-wage paying businesses such as retail, fast food restaurants, and service work such as cleaning, flipping burgers, serving at the groceries and security.
The issue of high wages is contradictory because an increase in wages is a necessity aimed to lower poverty levels and ensure a decent living, a case which is not always right. There is a possibility that the high wages would save the business costs on turnover and productivity.Increased labor costs (Patton, 2014).Small businesses operating in one jurisdiction usually face significantly high labor costs, with a substantial impact on their bottom line. Majority of operators in the business community admit that they incur a lot of the expenses in paying for goods and services in the community despite the costs incurred in running the businesses from salaries.
Besides, the fact that employers have to pay a salary of $15 per, the business managers just struggle in the economy because the profits acquired from the business cannot cater for all operations expenses. The employment policies institute adds that many business owners are forced to shut down the businesses hence loss of jobs for the employees.According to the small business administration, the small business in the United States account for 55% of all jobs and also twenty to thirty percent of the real estate component. Therefore, mandating the federal minimum wage increase would significantly affect the small businesses which form the backbone of the United States economy.
Substantial fall in sales due to rise in prices
Many minimum wage employees work for small businesses with small gains. Such low-profit gaining businesses will overcome the effect of high wages by increasing the prices. The gross impact of high rates goes back to the customer, and most cases become a burden to low-income families. Also, the higher prices would lead to low sales for example in fast food restaurants. For most residents in America, eating out is a luxury. When the luxury becomes expensive, they opt out. An increase in the price of food by 10% lowers the sales by 8.1% (U.S department of agriculture). Also, customers tend to buy less when prices are high.Reduced expense on turnover, hence high productivity gains
In as much as the increase in federal minimum wage may have adverse impacts on small businesses, it helps save turnover and productivity costs. While running a business, specialization in the industry is a crucial factor. Business owners look for specific skill sets. High wages and attractive compensation packages would help small firms to acquire and retain workers who possess required talents and play a key role in growing the company (Sherk, 2017). According to research carried out by Manta in the year 2016, many small business owners find it cheap to retain workers at higher pay than the costs of dealing with turnovers, fresh recruitments, and training of new employees.
Recommendations and conclusion
Minimum wage increments should be done depending on the impacts they cause. The increase may be done on areas that are face fewer likely impacts. The state governments considering an expansion of minimum wages in the aspect of economic development should aim to reduce the effects on businesses such as job flight and closure. In conclusion, increase in minimum wage could have minimal or no impact on job losses or even a burden to the businesses. The fact is that increase in payments may have value on both inflation and increased living standards without measurable effects on jobs and small businesses.
Ehrenberg, R. G., & Smith, R. S. (2016). Modern labor economics: Theory and public policy. Routledge.
Patton, M. (2014). The facts on increasing the minimum wage. Retrieved from: https://www.forbes.com/sites/mikepatton/2014/11/26/the-facts-on-the-minimum-wage-increase/#55c5ef9c33a1
Sherk, J (2017). $15 Minimum wages will substantially raise prices. Retrieved from: http://www.heritage.org/jobs-and-labor/report/15-minimum-wages-will-substantially-raise-prices