The Political Stance on Raising the Minimum Wage

The lowest wage permitted by law or by a special agreement is a country’s Minimum wage [1]. With a population of 7.6 billion people in the world of whom 2.5 billion live on less than $2 a day [2]. The cost of water in the United States of America comes up to an average of 1 cent for 1gallon of water which is quite a proportion of income considering $2 [3]. This is the case in a developed nation. And that too in a nation with the population of 323.95 million [4]people, according to the World Bank, which is less than quarter of the worldly population. However, much of the world is made of developing and less- developed nations with poverty stricken areas that are more in number than the United States and they live in harsher monetary conditions thereby making the issue a globally tensing one that requires immediate attention.Hillary Clinton, A successful business woman who stood for the presidential election in 2017 representing the Democratic Party, in one of the democratic debates, had discussed her view on the wage floor of $15. Initially, she claimed that if this bill were to pass, she would “of course” sign it. However, she later claimed that she would prefer signing a bill similar to the one passed on by the New York State which agreed on raising the minimum wage from $7.50 to $12 [5] according to.

She said nothing further. This confused listeners and many questioned her change of mind. She then, in an interview with George Stephanopoulos, a former white house congressman, Hillary took this opportunity to state her stance on increasing the minimum wage as clearly as can be stated. She said, “if the country came out with a legislation (to increase minimum wage) then of course I would sign it.” She agreed to sign the legislation provided that the country would check its economic well-being. Clinton had concluded her stance based on the reference to legislation passed in New York to increase the minimum wage to $15, surrounding areas to $12 and upstate $12.50, provided that economic conditions were constantly being assessed. She quoted Bernie Sanders who said that the legislation was supposed to be considered a model for rest of the nation to increase its minimum wage [6].

This stance clearly supports the idea of increasing the minimum wage. However what is the effect of such a decision. To establish these effects we can take the case of a dilemma that Los Angeles, California faced in the month of May, 2015.‘The Washington Post’, an American daily newspaper that is known for its particular emphasis on national politics, on May 19th, 2015, headlined ‘Los Angeles becomes the biggest city yet to approve a $15 minimum wage’. A number of economists assessed the effects of a higher minimum wage and had opposing views on these effects [7].

Mayor Eric Garcetti of Los Angeles estimated that 542,000 would receive a hike. Researchers from the University of California-Berkeley, from a study, foresees nominal job losses, decreasing 0.2% of employment base would be further removed due to the highly probable 2.5% job growth in the city, annually. The final verdict of the study was that a higher minimum wage would have more favourable than disadvantageous effects. Looking at employment is extremely important as it contributes to a nations GDP which, if grows, has attained a significant amount of economic growth.

However, an increased minimum wage can contribute to dissuading employers from employing people, as, naturally, it will increase their cost of production thereby increasing the price, reducing demand and causing potential business failure. This was the stance of the Chamber of Commerce who, inferred from their analysis that ‘Businesses might choose to locate in the suburbs to avoid pricier labour.’ It estimated 70.000 to 140,000 job losses over the next five years (by 2020) with a third of those losses influencing employees under the age of 25. Where is the support for 1st perspective?

Agreeing to the above perspective is Donald Trump, the president of The United States of America, representing the Republican Party had discussed his stance on the topic stating “I would not do it” when asked if he would increase the minimum wage, in the Republican Presidential debate. Coherent to this decision was Trump’s desire for the United States to become more competitive with the rest of the world, in which case, the minimum wages should be low or nil. According to the Washington post, in the Republican debate on Fox News conducted November 10th, 2015, Trump voiced out his belief by saying, “our taxes are too high, wages are too high, everything is too high. What going to happen is that people are going to start firing people.” [8]- [9] Trump says this in regard to the already high taxes and wages of Americans that are adding costs to their products. This would conclude as a high price on a product making the product less competitive in the international market, since reasonably priced goods are available in the rest of the market. This would reduce profits of a number of businesses and increasing the minimum wage would be a disincentive to employers to employ people which would cause a high rate of unemployment. There are 9 countries without a federal minimum wage. These are, Iceland, Norway, Sweden, Finland, Denmark, Austria, Germany, Italy and Switzerland [10]. It can also be observed that few of these nations have some of the lowest unemployment rates. According to the Euro stat, the unemployment rate of Iceland is 2.8% followed by Germany with 3.6% then Norway with 4.2% of unemployment followed by Austria with 5.6 and Denmark with 5.7%. These Statistics were provided in an article by Tim Worstall in an American Business magazine, Forbes. He says that Germany used to be a country with high rates of unemployment and they overcame the situation through labour reforms to establish more low wage jobs in addition to providing subsidies for low wage workers and now their unemployment rate reduced from 11%-12% [11] in 1950 to 3.7% from 1980 until the last time it was measured in November 2017 with negligible amounts of fluctuations, give or take.

As reported by BBC News, in Switzerland, It was planned to establish a minimum wage of 22 Swiss francs (about $25; £15; 18 Euros) an hour. The minimum wage proposal was rejected by 76% of voters. Supporters had argued it would 'protect equitable pay' but the Swiss Business Federation said it would harm low-paid workers in particular [12]. Agreeing with this perspective is David Neumark, professor of economics at the University of California, Irvine. In an interview with Here & Now’s Jeremy Hobson, he said, “My view of the evidence is that by far the lion’s share of it suggests that some job loss is from minimum wage increases, and those job losses as we might expect are concentrated on the very least-skilled workers.” [13] The view held by this professor figuratively takes on two perspectives. That is, the view that it affects low skilled people and the second being it only affects a small, insignificant proportion of people, identified from the tone of what he says. I believe that it does matter if the minimum wage is affecting the least skilled workers since they are the vulnerable group of a population. This is the main reason as to why supporters support minimum wage as they believe that not only is it based on equity, as per people who need money most, but also since everyone has enough money to access the basic requirements to survive.

Yet another problem that comes up due to the absence of a minimum wage, is the reduction in the supply of labourers. Working and not receiving the money expected by labourers can lead to an increase in the labour turnover per company. If this is the case, as labourers are discouraged to stay within the labour force. This will reduce not only employment, but due to an increased rate of unemployment there will be lesser output, thereby reducing total economic growth. For example, in China, Chinese provinces were raising the minimum wages due to lack of supply of labour. The inland areas of Henna, Shanxi and Ningxia unveiled an increase of minimum wage from 1,120 Yuan in 2010 to 2,190 Yuan in 2016 [14]. Additionally, if increased, minimum wages will increase the cost of production. This increases the prices of goods which could lead to inflation. A rising level of inflation goes against a nation’s macroeconomic policy since it will lead to further unemployment an undesirable economic environment.

A higher minimum wage would reduce government welfare spending. If low-income workers earned more money, their dependence on, and eligibility for, government benefits would decrease. The Centre for American Progress reported in 2014 that raising the federal minimum wage by 6% to $10.10 would reduce spending on the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) by 6% or $4.6 billion [15]. The Economic Policy Institute determined that by increasing the minimum wage to $10.10, more than 1.7 million Americans would no longer be dependent on government assistance programs. They report the increase would shave $7.6 billion off annual government spending on income-support programs.

In my opinion, although minimum wage and employment may not have a cause and effect relationship, such as a change in minimum wage will lead to s change in the employment rate, I do believe that there is a correlation amongst the two. And the difference between the correlation between the two in different nations depending on whether minimum wage exists or not is significant. The unemployment rate in Germany, a country without a legal minimum wage, is 3.9% as of August 2017, as per Euro stat, Bureau of Labour Statistic. The unemployment rate in Gabon is 28% and their minimum wage is $324er month [16]. Although other factors may come into play with the rate of unemployment the pattern observed and focused on, in this case in the minimum wage.

Considering all fronts, I believe that a country should gradually reduce its minimum wage allowing gradual changes and implement a progressive tax system evaluating and implementing according to the economic conditions at the time. In doing so problems associated with minimum wages would have a promised reduction to the problems as it is gradually removed. With that being said, there are many other economic conditions that contribute to employment rates that need to be evaluated while decisions on minimum wage are taken since there are countries with some of the highest GDP such as, Luxemburg, which has a federal minimum wage. To conclude, minimum wage influences employment to a very large extent. All said and done, the research used in this essay is limited to secondary research. There is scope for more research through the means of primary data, such as through interviews with people on low incomes or on the minimum wage and their daily spending to maintain a roof over their heads and to sustain a living. This research will be more up-to-date and relevant data to come to relevant solution to the problem. If this is carried out globally then the issue can be solved both locally and globally.