First thing that shall be considered in applying minimum wage is the person/s that would be affected by such changes. The labor market must be considered since more competitive markets tend to create higher unemployment rate (Gindling & Terrell, 2004, page 3). The demand for labor would determine the amount of person that shall be displaced with respect to the implementation of minimum wage increase or decrease. The effect of minimum wage changes on the workers which are not covered with minimum wage shall also be considered.
Since those who lose the job in the minimum wage covered sector would produce an increase in the available supply of labor in the sector that was not covered such as those who are self-employed (Gindling & Terrell, 2006 page 5-6). The third factor concerns the worker’s family income. Since the minimum wage is meant to reduce poverty, its effects must reduce poverty. However, the low-wage workers which are affected by the minimum wage might not belong to families in the poverty line or the low-income families (Lee, 2002 page 1).
Thus, if this is the case, increasing the minimum wage, might only increase the gap between the low-income families and the middle-class families. Lastly, is the level of the per-capita poverty line, which reflects the society’s view about what the minimum wage shall cover? In some society, minimum wage is used in relation to the worker’s personal basic needs while some societies consider the worker’s family’s basic needs (Katel, 2005). In this case, the number of family members and bread-winners of a family are also essential to know or to compute for the basic living standards in a given society.
Effects of Minimum Wage Minimum wage has different effects on different families and states. It simply depends upon the household and the way that the family responds to the changing Labor market and requirements. The family might benefit in the minimum wage increase especially when there are two or more minimum wage earners in the family and they all receive the wage increase (Katel, 2005). However if one or two of the family earners would lose job due to cost cutting of businesses, then the family might as well fall to poverty.
There would be more family expenses with less family income. The minimum wage also has varying effects on women and indigenous workers which are very susceptible from lay offs. Thus, there cannot be a clear effect of minimum wage. In order to know the general trend that an increase or a decrease in minimum wage produce, data’s must be collected and family income surveys must be taken. This shall accurately display the public’s reaction to the wage changes (Gindling & Terrell, 2006, pages 27-35).
Problems with Minimum Wage The statements above briefly explains how minimum wage is devised and designed in order to answer the problems in poverty, however, its opponents have obviously lay down the possible problems that might happen if minimum wage would be set and impose. According to Freeman (as quoted in Gindling and Terrell, 2006, page 4), the ultimate objective or purpose of setting minimum wage is not to decrease the number of employment, it is to create a better allocation of income to the low wage workers.
However the study that was made in the United States and United Kingdom denotes that the low is in fact not useful in promoting and increasing employment. In this case, the minimum wage shall be effective in increasing the earnings of workers who are low-paid. Nonetheless, the situation would not be the same given the fact that the current market is very competitive, as what the process of globalization have brought forward.
As stated above, the cost cutting procedure that happens due to an increase of minimum wage results to some workers who are usually in the bottom of the production or working ladder to lose their jobs at the expense of the retention of others with higher wages (Katel, 2005). Richard Berman presented the argument that it is in fact very easy to see that in the imposition of the minimum wage, the government can order the employers the amount that some shall receive, however, the government does not have a say on who are the person that the employers shall hire (Lee, 2002 page 1).