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The history of employment is one of the oldest in the world. It is also one of the most important components of the economy. However, this is not to say that it has not been faced with challenges. To prevent employee exploitation, the state has created minimum wage laws. These laws are geared to protect people who are not competitive in the work environment. A number of materials have been written to address the topic. However, there are some components of the topic such as laws, economical consequences as well as alternative measures to minimum wage that are left out in these studies. This paper addresses these issues in depth and provides statistical evidence to justify the claims.

Definition of Minimum Wage. Minimum wage is the lowest amount of money that employers are willing and able to pay to employees per hour, day, or per month as stipulated by laws of a country. However, it should not be confused with the amount that an employee is able to collect in a given working environment. As Barlatsky indicates, most of supporters of laws argue that it helps to alleviate living standards of people while opponents of these laws claim that it is the reason for the increased rate of unemployment (Berlatsky 152).

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Laws Regulating Minimum Wage. The level of minimum wage is guided by the legal jurisdiction of a country. There are several laws that dictate minimum wages. These laws vary from one country to another. However, there is a likelihood of existence of minimum wages without clearly outlined laws (Card & Alan 123). These minimum wages are called informal minimum wages. It usually results from the pressure on multinational companies to pay their employees certain minimum wage. Some of these laws require for a certain percentage of GDP to be paid as the minimum wage to employees. The government can also outline precise laws to dictate minimum wages.

Factors Determining Minimum Wages. Economic conditions of the country are taken into consideration when determining minimum wages. This involves formation of laws in a manner that does not lead to the loss of employment opportunities, while at the same time upholding the standard level of international competition. Some economists fear that keeping minimum wages at a high level may cause loss of jobs (Nordlund 86). This will happen if companies restrict the number of employees to a minimum to be able to adequately pay wages while, at the same time, maintaining high profit margins. Concerns in the economic sector also include matters such as the operating cost of business, living standards of people, the inflation rate, as well as trends of bankruptcy in a given country (Levin & Oren 34).

Concerns in the business sector include the rate of government over-expenditure and how this influences tax patterns of a country. Threats that impact the profitability of a business are also important in the formulation of minimum wage laws. Concerns also include the level of unemployment as well as the effect on wages of experienced workers.

Consequences of the Minimum Wage Laws. Among vicious supporters of minimum wage laws are agencies that administer these laws as well as trade unions that protect wages of their employees using minimum wage laws. The opposing group consists majorly of low-wage paying sectors of the economy such as restaurants and hotels (Ehrenreich et al 67). Those in favor of these laws suggest that apart from increasing living standards of employees, they lead to higher motivation of employees to perform better in the work environment. This leads to a bigger profit margin of companies. Stimulation of consumption is another result of these laws which leads to boosting of the economy (Levin & Oren 187).

Common disadvantages of these laws include benefits reaped by experienced workers at the expense of poor workers. The laws are blamed for the high college dropout as they entice students to join the work force (Flinn 109). The laws are also perceived to cause inflation of prices.

Empirical Studies. Over a long time, economists have strongly disagreed about the actual measurable impact of the minimum wage in relation to real world situations (Rottenberg 78). The disagreement results from competing empirical oriented tests on elasticity of both supply and demand in relation to labor markets. In addition, differences in marketsí efficiency predicted by actual perfection models of competition are put into consideration in relation to empirical studies about the impact of minimum wage on the society today.

Studies carried out by economists have covered almost all aspects of minimum wages that include actual effects on employment, effects on wage distribution among both low-paid and high-paid employees, effects on income distribution among both low and high paid workers, effects on worker-oriented skills during the work training in a bid to acquire formal education, overall effects on profits and prices, and on-the-job actual training effects. Research shows that effects of unemployment on the increase of minimum wage are dominated by such factors as out-of-training expenses and the existence of a strong economy. However. the view that minimum wage increases unemployment among youths and low-skilled employees still remains in the society today (Moyers 85).

The Economist Survey. Over a long period of time, economists believed that the increase in the minimum wage payable causes subsequent decrease in employment. However, this notion was rejected by scientific studies that proved otherwise (Peterson 45). In accordance to one of recent empirical studies carried out by Robert Whales in 2007, 37.7% of relevant respondents supported the intention to increase the minimum wage, 14.3% wanted minimum wage to remain the same, 1.3% wanted the current minimum wage level to be reduced, while 46.8% wanted the concept of minimum wage to be eliminated completely from the economic business world (Nordlund 112). The majority of the public holds the view that labor economics are in favor of the minimum wage policy, as compared to the AEA members, most of whom are against the concept of minimum wage. In addition, the survey conducted by Dompe and Klein in 2007 on the support of the minimum wage policy confirmed that most supporters agreed with a notion that minimum wage policy ensures the transfer of actual income and earnings to the worker from the respective employer (Welch 230).

Alternatives to the Minimum Wage. Politicians and economists have come up with alternative measures that are designed to effectively address the subject of poverty in the society. Some of alternative measures designed to substitute the minimum wage include the basic income strategy, which is also referred to as negative income tax. This strategy ensures that all members of the society are provided with a standardized amount of money that is sufficient support their living. The basic income is completely unconditional type of payment received by both the poor and the rich (Cunningham 65). The other alternative strategy is the guaranteed minimum income which is a provision of the social welfare quite similar to the basic income strategy. However, the guaranteed minimum income is a conditional type of payment which is subject to reasonable tests. The third alternative to the minimum wage is the refundable tax credit, where the tax based system can effectively reduce the total tax owed by a given household to a below zero level. The reduction results in an increase in the net income of the taxpayer, which exceeds their original payments in the tax systems (Gwartney 234). The last type of alternative strategies is the collective bargaining policy where the minimum wage in different sectors is effectively set through collective bargaining method.


In concision, factors that are considered in the formulation of minimum wage laws impact businesses as well as the economic sector. Consequences of laws are supported by those who favor them, including the administrator and trade union leaders. Those opposing the laws include owners of restaurants and hotels. The empirical study and survey carried out by economists cover all aspects of the laws. Some of the alternatives to minimum wages include basic income strategies.

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