Minimum Wages Rules And Their Effects Essay

Minimum Wages Rules And Their Effects Essay

Effects to businesses

Minimum wage laws are developed as a way of improving the living conditions of individuals occupying low job levels. In most cases, these employees are underpaid by their employers and as way of protecting them from abuse the government has developed and is enforcing the minimum wage laws. Comparing the minimum wages from the past and present, it is evident that they have been increasing at a very fast pace. For instance in 2007, the federal minimum wage was about $5.85 an hour, in 2008 it went up to $6.55 and this year it is expected to reach $7.25 (Irving, 2008). This is an indication that the government is one sided as the minimum wages are increasing despite the fact that the economy is undergoing a recessional period. As a result of the global economic downturn experienced in 2008, many organizations were affected adversely and since then many businesses have been experiencing low sales. Most businesses are still trying to recover from the losses and in addition to that the economy has not yet recovered. Many countries, inclusive of United States of America (USA) are still experiencing economic recession. For instance, in 2007, the GDP growth rate in USA was about 2.2%, while 2008 it reduce by about 0.9% (Economic watch, 2009). This is therefore an implication that increasing the minimum wage will affect the businesses adversely as it will reduce their profits to a minimum or even lead to losses. The main reason that makes individuals to invest their money in businesses is profit. Therefore, if the profit is lower than expected the business owner is forced to invest more efforts in order to increase the profit and this could mean reducing the quality of the services and goods or reducing the workforce. Despite the government’s good intentions of benefiting individuals of lowest job class, minimum wage is hurting businesses. As result of business sufferings and pain inflicted by the government’s decision to increase the minimum wage, customers are also experiencing the pain through low quality services and high prices of products and goods.

Furthermore, the minimum wages are not constant they vary from one state to another. Some states like Washington DC have high minimum wage of about $8.55 while other like Georgia have low minimum wages about $5.15 (Randstad, 2009). There are also some states which have introduced living wages thereby making employers to pay higher minimum wages (Irving, 2008). High minimum wages is affecting the number of businesses in a particular state and especially in minor states if compliance is ensured. This is because investors are avoiding those areas which have very high minimum wages. The primary objective of the investor starting a business is to maximize profit but with minimum wages which are increasing day by day the profits will be reduced at a fast pace. As a result of this some the areas will be underdeveloped since investors are afraid of incurring losses after investing their financial resources in that particular area. High minimum wages is therefore a hindrance to some investment opportunities. In spite of some people have enough financial resources for starting a business, they cannot risk to loss it through the high minimum wages they therefore prefer to keep it for themselves.

Consequently, the increase in minimum wages is affecting negatively the growth of many organizations. This is because with high minimum wages the profits incurred are reduced thereby reducing the amount of funds available for expanding the business. In addition to that as a result of the global economic downturn some organizations must have incurred some losses thereby using their financial reserves to pay their workers and their supplies. As a result of low financial reserves and low profits the chance of organizations or businesses expanding has been reduced to a minimum. Since businesses are not expanding the number of jobs will be stagnant for a longer time period and in some cases it might reduce due to lay-offs.

Furthermore, the effects of minimum wages are not great as some employees will still be underpaid. Ensuring that businesses are compliant with the laws is not an easy task. Some organizations will not increase their employees’ minimum wages since they are incurring low profits and therefore want increase their profits to a sustainable level. In addition to that there is time period allowed for organization to adopt the new minimum wage laws thereby providing some organizations with an opportunity to avoid increasing the minimum wages of their workers for a very long time period. Consequently, raising the minimum wages annually is violating the rights of organizations, they too have a right to decide on what to pay their workers. The money for paying out the workers is coming from their pockets thereby giving them the right to decide on how much should be given out to the workers. The government is forcing businesses to comply with the minimum wage laws not taking into consideration that businesses also have a right on how much to pay their workers.

Effects on the society

Businesses and especially small and medium sized businesses are experiencing low profits because of economic recession and high minimum wages which are increasing annually. Since businesses are incurring low profits or losses as a result of increased minimum wages, most businesses are opting to either reduce their workforce or pass the high expenditures to the customers by increasing the price of their products in order to maintain high profits (Pollick, 2009). As a result of businesses reducing their workforce, the number of unemployed people in the society has been increasing. For instance, the rate of unemployment in US has been increasing and this to some extent is attributed to closure of some businesses. The heavy penalties which businesses are exposed to are leading to huge losses and in turn closure of many businesses. This is because many businesses find it difficult to comply with the law as well as maintain high profits. This is therefore leading to increased court cases concerning businesses and their employees which end up damaging the businesses and increasing unemployment. By increasing unemployment, crime rate is likely to increase as result of more people being idle and broke.

Furthermore, high minimum wages has been making it difficult for individuals to get jobs. According to a researches done the number of jobs lost as a result of increasing the minimum wage by about a dollar are more than 100,000 (Garfield, 1996). This is therefore an indication that high minimum wages have been reducing the lifetime earnings of low skilled employees. In addition to that it has been reducing the chances of individuals securing a job opportunity (Kosters, 1996). This is because most businesses are protecting themselves and therefore have been reducing their workforce in order to maintain their business lives. It is also implies that organizations have been avoiding hiring new employees to save on expenses and maximize profits. In order to avoid increasing the workforce organizations are therefore purchasing machines or equipments with multiple functions for performing the tasks which would have required additional workforce.

Some proponents have been supporting higher minimum wages as they view them to be important for working families. The fact is that about three percent of the minimum wage workers are single parents and more than fifty seven percent are single individuals in which most of them live with their parents (Vedder & Lowell, 1995). Despite the fact that the government is aiming at reducing poverty by increasing minimum wage, most of the minimum wage workers are not poor people. Poor people constitute more than fourteen percent of minimum wage workers with full time employment (Neumark, 2007). This is therefore making the level of minimum wage to be irrelevant in improving the lives of the poor people. Majority of the minimum wage workers are students from colleges and high schools and hence do not have many problems related to family issues such as raising children, paying fees, among others. By raising the minimum wages poor people are not benefiting as required since they comprise a very small percentage. The benefits of raising the minimum wages go to the high and middle class families since they comprise most of the students enrolled in colleges and high schools.

Consequently, minimum wages also tend to reduce work experience, education, and training of minimum wage workers for a long time period. This is because the employers are investing little finances in providing them with training and in addition to that the minimum wage cannot afford them higher education which would have enabled them to climb the job class ladder. This is therefore making it impossible for minimum wage workers to get better paying jobs. Increasing the minimum wage is making the situations worse as the chance of minimum wage workers being provided with training will become almost impossible. This is the employers are spending more on paying them and in order to compensate that loss employee training and education will be avoided.

Furthermore, as a result of increases in the minimum wage, most students are dropping out of schools after getting a job (Neumark & Wascher, 1995). This is therefore reducing the rate of school and college enrollment as most students prefer to work for the minimum wages instead of studying. Education is essential for improving the lives of people and in ensuring them a better future. Dropping out of school is very destructive to the lives of these students. Without education, the high school and college drop outs will have a very difficult time in the future in improving their lives.

In conclusion, the minimum wage laws have little benefits to the poor and the lowly paid individuals in the society. Raising the minimum wage is increasing problems which are experienced by the society. It is leading to an increased in high school and college students drop out rate, unemployment rate, among others. Raising the minimum wage is not the best way of lifting people out of poverty, the government needs to develop a system that maximizes the economic opportunities which will improve the lives of minimum wage workers.

Reference list

Economy watch, (2009). The US economy. Retrieved July 13, 2009 from

Garfield R., (1996).The case against a higher minimum wage. Retrieved July 13, 2009 from

Irving S. (2008). Nolo’s encyclopedia of everyday law: answers to your most frequently asked legal questions. Edition: 7. Berkeley, CA: NOLO. p.53

Kosters M.H., (1996). The effects of minimum wage on employment. Edition: 2. Chicago, United States: University of Chicago Press.

Neumark D., (2007). The economic effects of minimum wage laws. Retrieved July 13, 2009 from

Neumark D. and Wascher W., (1995). The effects of minimum wages on teenage employment and enrollment: Evidence from Matched CPS Surveys. Cambridge, MA: National Bureau for Economic Research.

Pollick M., (2009). Does Raising the Minimum Wage Cause Inflation? Retrieved July 13, 2009 from

Randstad, (2009). Minimum wage set to rise in US. Retrieved July 13, 2009 from

Vedder R. and Lowell G., (1995). Should the Federal Minimum Wage Be Increased? Dallas, TX: National Center for Policy Analysis.

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