Summary
The article “Raising minimum wage would ease income gap but carries political risks” examines the proposal of President Obama to raise the current minimum wage within the U.S. from $7.25 an hour to $9 an hour (Lowrie, 1).
His argument centers around his view on how American minimum wage at the present has failed to keep up with the increase in the price of goods and services and, as a result, needs to be increased in order to address the issue of income disparity between the various consumer groups at the present (i.e. the poor, the middle class and high income families) (Hicks, 24).
However, the article goes on to mention that despite the justification behind the request to raise the minimum wage, the author believes that it would be difficult given that the issue is not only a political one (i.e. the Republicans within Congress are sure to veto the request) but an economical one as well given the potential on how higher minimum wages would result in companies leaving the U.S. for destinations abroad where it would be cheaper to manufacture their goods (Lowrie, 1).
Critic
When examining the article there are two distinct factors that come to mind:
a.) The competitiveness of the American workforce
b.) The current economic recession that continues to impact the U.S. economy
The main problem with the proposal of President Obama lies in what the article states as the possibility of companies leaving the U.S. due to the increased cost in business that would come with higher minimum wage levels.
With globalization in effect enabling a company to transfer its manufacturing and operations divisions from one country to the next, it would be easy for a company to transfer their current operations from the U.S. into some other country. Not only that, with the ease of outsourcing at the present, this would result in job loss for millions of workers within the U.S. as companies attempt to find cheaper labor alternatives.
Examining the Validity of the Articles Arguments
On the other end of the spectrum comes the article “minimum human wages” which states that due to monopsony power within the labor market is it likely that increases in minimum wage at the lower end of the employment scale would actually cause an increase in the higher end of the spectrum as well (The Economist, 1).
This comes about as a direct result of employees becoming motivated to work harder due to higher minimum wage levels resulting in increased company productivity. In fact, the article even compares the situation between the U.S. and Britain and explains that increases in minimum wage may not necessarily result in a considerable level of outsourcing but would instead result in greater levels of automation.
For example, jobs that used to require people such as tellers and greeters could eventually be replaced by automated processes. The only reason why this has not been done yet is due to the fact that some companies still perceive employee wages as a more affordable alternative to automation. With a minimum wage increase this may in fact tip the balance resulting in more automated processes which would create better operational savings for a company.
It is based on this that it can be stated that while the article was able to show one of the possible scenarios that could occur, it neglected to delve into other possible outcomes some of which may in fact be positive.
It should be noted though that in a labor market that is controlled by a monopsony seller, the establishment of a minimum wage would actually result in a reduction in unemployment as the seller adjusts rates based on the established wage. However, this is based on a monopsony market and not all markets within the U.S. are classified as such.
The Current Competitiveness of the American Workforce
When taking into consideration the section on outsourcing and comparing it to the competitiveness of the U.S. workforce, it immediately becomes obvious that an average American worker is simply paid far too much as compared to their counterparts in the other countries who do the same level of work.
Aside from salaries, companies need to take into account extensive healthcare benefits, 401K plans as well as an assortment of other costs associated with hiring someone from the U.S.
While some companies continue to base themselves in the U.S. through various cost cutting measures such as workforce reductions and creating more efficient methods of operation, the fact is that as soon as an increase in minimum wage will be applied the cost of operations for them would increase by several million dollars. This creates the possibility that in order for them to survive they would need to shift operations to other countries where the cost of doing business is lower.
Conclusion
Overall, I would have to say that the article was right in stating that an increase in the minimum wage of the U.S. could possibly result in companies leaving the country. While President Obama is right in thinking that wages should match the increased cost of products, the fact is that right now is the worst possible time to implement such an endeavor.
Consumer demand within the U.S. has yet to increase to significant enough levels while at the same time companies are all too willing to leave the U.S. due to the increasing cost of doing business. Based on what I have learned about labor economics, I would have to say that this is a terrible idea and would result in job loss as companies scramble to find some degree of profitability which usually consists of terminating workers to do so.
Works Cited
Hicks, Mike. “Stagnant Pay For Low-Wage Workers A Problem.” Indianapolis Business Journal 33.53 (2013): 24. Regional Business News. Web.
Lowrie, Annie. “Raising Minimum Wage Would Ease Income Gap but Carries Political Risks.” New York Times. 13 Feb 2013: 1. Web..
The Economist. “Minimum human wages.” The Economist. Theeconomist.com, 15 Feb 2013. Web.