There are both positive and negative aspects to raising the minimum wage, and the damage that the economy receives from low minimum wages is evident. It allows a large number of commercial organizations to successfully evade taxes, setting their employees’ official salaries at the minimum level, thereby removing from taxation most of the actual salary paid. An increase in the minimum wage will lead to an adequate increase in the average wage, which is indeed fraught with certain threats to the country’s economy. A high level of the minimum wage, which is not correlated with the possibilities of the economy and the level of labor productivity, will create an unreasonably rigid formal institution, which will lead to certain negative consequences. Nevertheless, the minimum wage should be increased due to the fact that its positive effect will be greater than the overall consequences.
One of the key arguments for increasing the minimum wage is the notion that economic activity will grow due to higher standards for employees and improved production. Problems related to the profitability of industrial enterprises can also be mentioned as a possible benefit because many companies are currently using high-cost technologies, and they are already on the verge of profitability. In the event of a forced increase in the minimum wage, wages will rise, and these businesses will not be able to be profitable without a quality reduction in staff, which will help increase production efficiency.
Increasing the minimum wage will increase the social efficiency of society, which is determined by the degree of satisfaction of its needs. The minimum degree of satisfaction of such needs is the lower limit of the social efficiency of society. Evidently, the upper limit is determined by the capabilities of the national economy. Together with the lower limit, they are the marginal social efficiencies of society. Between them, there is an actual level of social efficiency, which depends on the type of macroeconomic system, which is determined by property relations and public administration.
Another critical argument is the fact that raising the minimum wage reduces income inequality and improves the living standards of people, which are an essential part of social efficiency. The degree of satisfaction of the needs of society is a generalized result of meeting the needs of each of its members. Objectively, they are different, but they can be summarized by the population. For example, wage size is the degree of satisfaction of the needs of employees, disabled retirees, children, or students, where the main source of satisfaction of needs is their income (“Should the federal minimum,” 2019). That is, the social efficiency of society should be differentiated by the criterion of income homogeneity.
In conclusion, for the dominant part of the population, the main and direct source of income is wages and social benefits, such as retirement accounts. Employees as direct producers of the given social product are the most important for economic development. Therefore, for the social efficiency of society, the most significant is their wages, its growth reduces economic and increases social efficiency. That is, in solving the problem of balancing social and economic efficiency, a certain regulatory function is performed by the wages of employees. Thus, the minimum and average wages of employees should be used in the rationing and determination of the social efficiency of society. An increase in the minimum wage for employees will help increase the efficiency of production and legalization of shadow income. As a result of the increase in the minimum wage, one can expect a reduction in the size of a nation’s shadow economy. As a result, the social efficiency of the national economy will not only increase, but also be balanced with economic efficiency.
References
Should the federal minimum wage be increased? (2019). Web.