Government intervention in the economy involves using fiscal and monetary policies to regulate various forces shaping businesses. Different regimes get involved in the marketplace for numerous reasons, such as to combat market discrepancies through subsidies and taxations. Moreover, administrative bodies may also intervene in the corporate world to foster general economic equality while also maximizing social welfare (Seth 19). This paper analyzes the economic impacts of the increasing minimum wage by offering arguments for and against it in the labor market.
Raising the minimum wage in a specific country comes with several benefits. For example, in the business world, employees’ productivity will be significantly improved. Economists have noted that worker morale and work ethic improve when staff are given adequate compensation packages (Seth 19). In essence, researchers have linked increased wages to enhanced physical and psychological health. Another reason why the government should increase the minimum wage is that it boosts the economy. In particular, it raises consumer spending, which ultimately translates to improved Gross Domestic Product (GDP).
Moreover, it has a profound effect on the industrial sector, such as boosting the hospitality and retail segments. Lastly, increasing the minimum wage comes with bipartisan support (Seth 25). Both Republican and Democrat States in the US have passed minimum wage increases. Moreover, presidents from both parties have supported these economic steps, and most notably, former US presidents Nixon, Eisenhower, and George W. Bush have approved decrees raising the federal minimum wage (Himmelstein and Venkataramani 198). In essence, governments should tactfully incorporate these steps and enact laws that increase employee wages based on various occasions.
Irrespective of administrative authorities regulating the labor market, boosting employee wages may come with several consequences. The reason against increasing minimum wages is that it minimizes the quantity of labor demanded and therefore resulted in unemployment, as illustrated in the graph below (Himmelstein and Venkataramani 200). In the United States, most economic experts have contradicted the federal minimum wage of 15 USD per hour (Himmelstein and Venkataramani 200). They argue that the hourly wage will have detrimental effects on adult and youth employment levels. The graph below captures the economic impacts of raising employee wages considering the supply and demand for labor.
Economists also believe that raising the minimum wage minimizes the income of low-paid employees. Evidence also reveals that higher wages tend to exacerbate the economic wellness of affected workers (Seth 25). Economists had also discovered that when employees’ wages were paid at or just above the minimum, their earnings fell due to the impact of the wage hikes, suggesting detrimental consequences on employment and hours, as illustrated in the graph. Another reason why the government should not improve minimum wages is that it enriches low-earning workers at the expense of other employees (Himmelstein and Venkataramani 201).
This process results in the redistribution of returns among low-income families, with some individuals gaining while others are affected due to the diminished job opportunities or reduced hours. Lastly, increases in the minimum wage lead to inflation, where the prices of products and services upsurge (Seth 24). In particular, the empirical literature has reliably revealed that proliferates in the minimum wage contributes to price increases. Therefore, the government should know when to raise the minimum wage based on specific market conditions.
In conclusion, this paper has discussed why the government should participate in improving employee wages and offered some knowledge on why it should not. In essence, government regulation in business remains a critical factor in the management of an economy. Therefore, while there are both advantages and disadvantages of increasing the minimum wage, the government should have a personalized approach for each market or region to adjust wages according to the prevailing conditions.
Works Cited
Himmelstein, Kathryn EW, and Atheendar S. Venkataramani. “Economic vulnerability among US female health care workers: potential impact of a $15-per-hour minimum wage.” American Journal of Public Health, vol. 109, no.2, 2019. pp. 198-205. Web.
Seth, Vijay K. “Economics of Minimum Wage Legislations—Lessons for Emerging Market Economies.” Emerging Economy Studies, vol. 3, no.1, 2017. pp. 19-33. Web.