ipl-logo

Minimum Wage Policy

1062 Words5 Pages
bulb-icon

Recommended: Effect of minimum wage on employment

INTRODUCTION

For much of the past century, the minimum wage has been a controversial subject among policymakers and economists. The minimum wage policies are implemented by governments to ensure a fair wage for the lowest paid workers; the main objectives of the policy include poverty alleviation and inequality reduction. In terms of income inequality level, South Africa ranks among the countries with the highest level as measured by the Gini Index. Highly unequal distribution of income and opportunities has marked South Africa for so long. The government has been actively involved in various programs to address the issue and has now considered introducing the national minimum wage as the key remedy for poverty and inequality.
The concept …show more content…

Conventional economic theory predicts that a rise in the minimum wage leads employers to reduce employment in a competitive equilibrium (Stigler, 1946). However a growing number of studies indicate that the relationship between minimum wage and unemployment is not necessarily always negative (Katz and Krueger, 1992; Card, 1992 a, b).

Before discussing the impact of the national minimum wage legislation in South Africa, let us first understand the concept in terms of the economic theory.
ECONOMIC THEORY
The labour market includes workers and firms as participants. Workers supply labour to firms in exchange for wages, and firms demand labour also in exchange for wages. The demand for labour and the supply of labour are the determinant of the equilibrium wage rate and the quantity of labour employed.
When the government imposes a minimum wage which is higher than the equilibrium wage rate, a conflict between the market forces and the force of the minimum wage …show more content…

A minimum wage that is set above the equilibrium wage rate is said to be binding, while a minimum that is below the wage rate is non-binding, and has no effect in the market equilibrium.
Because the equilibrium rate is legal in the case of a non-binding minimum wage, we will focus on the binding minimum wage which has an effect on the labour market.
Our model assumption is thus that a government will only impose a minimum wage that is above the market clearing level. The effect of an increase in real wage on quantity of labour supplied implies that more individuals will be willing to work if the market salary is higher. In other words, individuals who operate outside the workplace will now be attracted to labour market because of the advantages it offers following minimum wage increase.

The effect of an increase in minimum wage on quantity of labour demanded, that is, its effect on employment, implies that firms will reduce their labour needs if the cost of labour

Show More
Related
590 Words | 3 Pages

On the other hand, businesses are less willing to hire workers because the cost of labour has increased. As a result, the minimum wage creates a situation in the market whereby there are more labourers than the businesses can hire. In other words, there is now

Read More
646 Words | 3 Pages

In the article, “Minimum Wage Hikes Hurt Low-Income Workers,” Jame Sherk debates how an increase in the minimum wage would impact workers and corporations. Sherk builds his argument by first explaining the recent history of an increasing minimum wage and how much it has risen. Following, he argues why it would hurt businesses and low-income workers. Lastly, after illustrating the consequences, he offers statistical evidence to support his claim and to prove to the reader why the hike would only hurt both businesses and low-income workers. Sherk’s use of evidence and explanation offers a strong argument and a clear stance.

Read More
524 Words | 3 Pages

Raising the minimum wage has been one of the biggest debates during the 21st century. One side of the spectrum argues that raising it will make it so they have a living wage, while the other argues that raising it will hurt the economy. Whichever the case is, people are clearly divided on this issue. Before Oregon passed the 15 dollar minimum wage law, people wrote arguments to try to either prevent or pass this law. The article, “How a $15 minimum wage would affect a real business: Guest opinion” by Lee Spector argues that raising the minimum wage would hurt small businesses like the one he earns.

Read More
799 Words | 4 Pages

Correspondingly, there are several economic perspectives that delve into the pros and cons of the public policy of minimum wage. The implementation of an increase in minimum wage is a commonly supported argument. Increases are said to put more money into the pockets of low-income workers, which, as a result, will stimulate and expand the overall economy (Mejeur). In

Read More
531 Words | 3 Pages

The point is that, with the increase of the minimum wage, firms that face higher costs cannot maintain profits simply by raising prices regardless of demand for their products. While the increase of the minimum wage will increase demand for those products purchased by low-income people, it will not yield an equal increase in demand for all

Read More
733 Words | 3 Pages

A minimum wage increase from “$7.25 to $10.10 would result in a loss of 500,000 jobs”. ("The Effects of Minimum-Wage Increase on Employment and Family Income”) This claim is better because it shows how raising the minimum wage will decrease job growth instead of increasing it. But, the minimum wage should be increased because increasing will also increase economic activity and spur job growth, decrease poverty, and improvements in productivity and economic growth have outpaced increases in the minimum

Read More
331 Words | 2 Pages

Minimum wage is the least amount of money per hour that employers are required to pay according to the law. The minimum wage is set to be the standard of living. Due to inflation, $7.25 an hour has become less than the minimum necessary, causing many Americans to fall well below the poverty line. The government should raise minimum wage to create more job opportunities, decrease government assistance, and increase the economy overall. The economy will raise as a whole when workers put their money back into the community.

Read More
305 Words | 2 Pages

Minimum Wage In this paper I wish to examine two different points of view on rising or not the minimum wage. Minimum wage, the lowest daily or monthly remuneration that employers may legally pay to workers. It was set for the first time in 1939 and varied with time. The most currently change has been made in July 2009 and people are willing changes to be done.

Read More
636 Words | 3 Pages

Many politicians, business owners, and citizens hold fast to the belief that heightening the salary attached to minimum wage positions will yield negative benefits for our society. This opinion is supported by three vital view-points. The first can be found in the news article, “The Argument Against Raising Minimum Wage.” It expresses how the enlargement of this payment will take a toll on employment. The document reasons that if the amount of money employees earn is expanded, companies will be less likely to hire as many workers (Huppke).

Read More
885 Words | 4 Pages

And on April 1, 1991, the minimum wage hit an all-time high of $4.25 an hour as explained by Lawrence Katz (6). In his findings regarding his article, Lawrence Katz states that "the evidence on employment and price changes does not seem consistent with a conventional view of the effects of increases in a binding minimum wage” (20). By this, Katz is trying to state that even though the minimum wage increased in the early 1990s, the increase had an adverse effect in which employment to the fast food industry increased in Texas, where he conducted his research. He also concluded that the changing in prices in the businesses he researched were not directly associated the minimum wage increase. Looking back at this research, it seems as though the constant increases in the minimum wage shows how strong our economy has become.

Read More
1153 Words | 5 Pages

We find no evidence that minimum wage increases between 2003 and 2007 affected overall state poverty rates. ”(Leigh, A. (2007) Proposals to increase the minimum wage are politically popular because they are widely seen as an effective way to help the working poor. In spite of it, state and federal minimum wage increases between 2003 and 2007 had no effect on reducing the poverty rates. “Minimum wage increases have thus far provided little more than symbolic support to the working poor.”

Read More
533 Words | 3 Pages

Minimum Wage from the perspective of Labour Force: Minimum wage has the maximum impact on employment. This concept can be graphically explained. From the above diagram, when the labour and product market are perfectly competitive, the equilibrium wage in the market is at the intersection of the supply and demand curve. At wage w, the corresponding employment level at L , is the point where the supply of labour is equal to the labour demanded. Now, if minimum wage is implemented, setting it above it equilibrium wage, the new wage is at mw, leading to a decline in employment with the demand for labour falling from L to Lmw.

Read More
717 Words | 3 Pages

The Minimum Wage Struggle Money is an essential object to acquire in the society we live in. Various places demand a high monthly rate in order to occupy a premise, along with the stress of utility bills that may not be included. Aside from living costs there are many other factors which must be calculated when budgeting on a day to day basis. Overall, the survival rate tends to increase due to so many responsibilities that need to be upheld, as well as costs being raised. This rise in both the cost of living as well as the need for higher wages proves that the standard of minimum wage needs a major increase.

Read More
1586 Words | 7 Pages

The main “common sense” argument is that by imposing minimum wages, one artificially raises the price of labour way from its “market-clearing” level and higher unemployment results-and the first to lose their jobs will be the least-skilled workers (city press;2014/11/25). The national minimum wage is a step towards an alternative growth path, in other words wages must be set to target productivity and efficiency. But it must be accompanied by other alternatives; such as industrial policy that sees that South Africa create jobs in sectors that can sustain moderately higher wages, and grow sectors that can benefit from, and contribute to, increased domestic demand (city press;2014/11/25).

Read More
704 Words | 3 Pages

Many argue that an increase in minimum wage will help guide low skilled workers out of poverty and assist them into having a better career. That is not necessarily true, Many economists can agree that minimum wage jobs such as cashiers, host or a hostess are not jobs that meant to support a family. If anything by raising the minimum wage, it will put more people in poverty than guide them out of poverty. A raise in minimum wage will cause loss of jobs, an increase in the inflation rate, increase in

Read More

More about Minimum Wage Policy

Related Topics

Open Document