In any countries in the world, the poverty is an unsolvable problem. What politicians are able to do is just reduce the percentage of the poverty population in their country. The most often used means to solve this problem is raising the minimum wage by change the law of that country. However, only giving their citizens more money will not solve the poverty. The inflation and unemployment rate are always appear with the raising minimum wages. The method of raising minimum wages can be viewed as a raise of price floor. “Price floor is a legal minimum on the price at which a good can be sold”.
(Mankiw. Chap 6-1). Price floor means that any sellers cannot charge a price higher than the price floor. It a means of price control that given out by the government. It also divides into two different categories as binding price floor and nonbinding price floor. How to distinguish whether a price floor is a binding price floor should depend on the natural equilibrium point. The concept of natural equilibrium point is that “ The intersection point of market demand curve and market supply curve”. (Mankiw. Chap 4-4).
The natural equilibrium point is where the price perfectly balanced with the market demand and market supply. If the Government makes a raise of minimum wages and the minimum wages does not exceed the equilibrium price of the labor market, then the policy of raising minimum wages will be great; a lot of workers will benefit from this policy and make a better living. However, if the policy of raising minimum price wages exceed the equilibrium price of the labor market. The raising minimum wages policy will becomes a binding price floor for the labor market.
When it becomes a binding price floor, the price floor will above the equilibrium and it will cause a surplus on the labor market because the quantity supply higher than the quantity demand. The group of people that benefits from the raising minimum wages is people who still have jobs after the raise of minimum wages because they receive a higher payment even though they are doing exactly same job and work exactly same hours as before. The group of people who gets hurt from the raising minimum wages is people who lose their job as a result of raising minimum wages and the people who enter the labor market but cannot find a job as result of labor surplus caused by raising minimum wages. First of all, the adverse impact of raising minimum wages is obviously.
In June 2006, the unemployment rate in the United States was 4. 6%and the minimum wages was $5. 15 per hour. But in the June 2009, the unemployment rate in the United States was 9. 5% and the minimum wages was $7. 25(Bureau of Labor Statistics 1). The White House has claimed “the $1. 75 increase in the minimum wage would be enough to offset roughly 10 to 20 percent of the increase in income inequality since 1980. ”(Annie 1). When the minimum wages increased, the unemployment rate increased at the same time.
Companies will try to higher workers who have more experiences and skills and have ability to finish more tasks within a given period. The group of workers that will be influenced most will be teen workers because they don’t have much experienced and their skill are not tested and practiced mostly. Aspen Gorry agree with this opinion, he had stated his point of view in his article “Higher levels of the minimum wage also generate differences in unemployment for older workers as it is harder for young workers become experienced”(Aspen 64).
Also, there are some specific data has provided by an online research paper about the relationship between raising minimum wages and jobless teen workers. “ Between 2007 to 2009, when the minimum wages increased by 41 percent, there was a disastrous effect on teen workers, the jobless rate increased 10 percent from about 16 percent in 2007 to about 26 percent in 2009, for the workers who age between 16 to 19 years old. And the unemployment rate for the entire United States was increased as well from 5 percent to 10 percent”(Parry 1). On the other hand, the unskilled workers are another group of worker that will be influenced most by the raising of minimum wages.
If the Government tries to help their people’s living standard only by increasing the minimum wages, it will has a bad effect because it will reduces the demand for this particular group of worker and increase the number of this group of worker who looking for jobs. The companies are not willing to burden more wages expense and only get the same amount of works done, especially for the unskilled worker because their jobs can be instead of advanced machines. The companies are more willing to spend more money to purchase machines than hire workers because machines can be sold later even though they have to make an entry for accumulated depreciation for the machines.
The President Obama has called the congress to raise the minimum wages to 9 dollars per hour. His purpose of this action was to increase the earning of elderly workers and low-wages workers. The federal minimum wages is $7. 25 per hour now. However, there are few state has law their own state minimum wages that is higher than the federal minimum wages, such as Massachusetts. The Washington state minimum wages is the highest minimum wages in the United States for $9. 19 per hour (Washington state department of Labor 1).
If the Congress passed the raising minimum wages proposal, what will happen next is that there will be few states has a even higher minimum wages than the federal minimum wages. If the federal minimum wages increased by 24 percent from $7. 25 to $9 per hour, the minimum wages for the Washington State will increase from $9. 19 per hour to $11. 40 per hour if the Washington State raises the percentage minimum wages as the federal Government does.
The unemployment rate of the Washington State will increase with a big step. Also, there is a problem of state minimum wage higher than the federal wage, Peter Skott has mentioned this issue in his article, “The construction of a relevant minimum wage also raises problems since some state level minimum wages exceed the Federal minimum. The minimum wage can be defined at the state level, and the non-binding Federal level in some states – which is a problem in time series regressions” (Skott 247).
In the time of regression, if the state minimum wages higher than the federal minimum wages, the distribution of labor resource will become inefficient because people will choose to work in a state that can provide them a higher wages for the same work. However, there will be some good effects for raising minimum wages otherwise politicians will not always wondering whether they should increase the minimum wages. If the minimum wages increased, families will have more money and they can spend more money on children early education.
The more wages they earns, the more education their children will get, and the more money the government can save from later welfare expense. It can increase the graduate rate, and reduce both teen pregnancy and violent crime. He less teen pregnancy means the more children will have a better education because a person who age under 20 cannot provide their children a good material life and chance to have a better education. Economist David Cooper had mentioned the positive effect of raising minimum wages in his article “In the first year, with an increase from $7. 25 to $8. 20, 14 million directly and indirectly affected workers would see higher wages.
This number would rise to about 21 million workers with the second incremental increase to $9. 15 in 2014, and to more than 30 million workers with the third incremental increase to $10. 10 in 2015”(David 1).
There will be a lot of workers and their families benefit from the raising minimum wages even though some group of workers will get hurts. “Increasing the federal minimum wage to $9. 80 by July 1, 2014, would give an additional $39. 7 billion over the phase-in period to directly and indirectly affected workers, who would, in turn, spend those extra earnings. Indirectly affected workers—those earning close to, but still above, the proposed new minimum wage—would likely receive a boost in earnings due to the “spillover” effect, giving them more to spend on necessities”, said by Shierholz (Shierholz 7).
The raising minimum wages can make a big difference in both groceries and rent. In the business point of view, the raising minimum wages means there will be more customers have more money in their hand to spend. It will bring the economy into a good cycle. By analyzing all the numbers, data and history of the economy. It is impossible for some political actions have only advantage. The disadvantages are always go with advantages, what the politicians should consider about and what is the standard of judging an action whether is a good action is that whether an action maximize the happiness of the greatest number of people.
There is no doubt that raising minimum wages can provide people a better living standard, the percentage of raising is the dominant factor that will decide whether it can be a successful policy. Bibliography Lowrey Annie. "Raising Minimum Wage Would Ease Income Gap but Carries Political Risks" The New York Times. The New York Times, 13 Feb 2013. Web. 19 Oct 2013. Mark J. Parry. "Let’s review the adverse effects of raising the minimum wage on teenagers when it increased 41% between 2007 and 2009" aei-ideas. org. AEIdeas, 16 Feb 2013. Web.
24 Nov 2013. Cooper David. "A $10. 10 minimum wage would give economy (and more low-wage workers) a bigger boost" Working economics. n. p. , 5 Mar 2013. Web. 20 Oct 2013. Gorry Aspen. "Minimum wages and youth unemployment. " Economic review 64. 1 (2013): 57-75. Print. Shierholz, Heidi. 2009. Fix It and Forget It: Index the Minimum Wage to Growth in Average Wages. Economic Policy Institute, Briefing Paper #251 Mankiw N. Gregory. Principles of Microeconomics. 6th ed. Unknown: Cengage Learning, 2011. Print. Skott Peter. "Journal of Economic Behavior & Organization. " ScienceDirect 84. 1.