The Policy Dilemma of Minimum Wage Laws

The Policy Dilemma of Minimum Wage Laws

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The Policy Dilemma of Minimum Wage Laws

Overview                                                             

Minimum wage law fixes a base pay level that employers are mandated to pay their workers. The minimum wage laws are either fixed by the states and federal statutes. It is viewed by economists as one form of labor market imperfections since it does not provide a normal wage-rate that the labor market can naturally take-on. Instead, it fixes higher wage rate above the market-clearing wage. The law applies to both public and private sectors, however, those employees with stronger trade unions tend to command stronger bargaining power; and hence, their minimum wage levels are relatively above the federal minimum requirements.

According to Prash, by 2013, 120 cities had endorsed the law with Maryland spear heading the process by adopting a statewide “living wages.” An approach that has been widely adopted by most states is the indexing approach. Hawaii, New York, New Mexico, Minnesota, Illinois, and Connecticut are some of the states that embrace this approach (Prah, 2013).

Analysis

The minimum wage law first came in the limelight in 1938 as part of the “Fair Labor Standards Act” and signed into law by then President Roosevelt. The law gave a 25% per hour wage floor and a 44 hour work week ceiling for majority of workers. Its enactment was seen as a major advancement toward improving the welfare of workers. However, in the recent times, the proposed increments in minimum wage rates have been politically divisive (Levin-Waldman, 2014). While at the states level, wage hikes have preoccupied the minds of voters. Studies compiled since 1998 indicate that recommend rise in minimum wage “have been on statewide ballots 10 times in nine states and all have succeeded” (Prah, 2013).

While most companies brag of increased profits margin, the purchasing power of the lowest-paid employees continues to contract because the minimum wage laws have failed to maintain a steady pace with the inflation. For instance, in 2009, average cost of a gallon of milk New Mexico was estimated to be at $2.69 and by 2013 its cost was at $3.50. If this trend is true to all commodities in the economy, then in the 2013 the consumers were worse-off as compared to 2009. Therefore, transferring more incomes to the working class will boost the local economy by enhancing the net demand (Prah, 2013).

Consumer expenditures strengthen the economy by increasing profit margins which provide an incentive to entrepreneurial class to invest a lot. Therefore, stronger minimum wage bills advocated by president Obama and other proponent of higher minimum wage are healthier to the society.  Th.............