Most of the average Americans are living on a wage that the US government has deemed to be enough for the provision of reasonable standards of living.
These wage rates have literally remained at a standstill over the years while the cost of living in the society has been rising day by day. Therefore, people continue working but they cannot be able to afford reasonable living standards for themselves and their families. These situations are very common in America because the minimum wage is not changing with respect to the increasing costs of living.
By 2008, the proportion of the working poor in the US was nearly 30% from a report by Working Poor Families Project titled “Still Working Hard, Still Falling Short” (Eley, para.1). This number has been increasing from the previous years. The result is that as the working poor increases, the future of most children will be at stake. They will not be able to acquire decent education and even health insurance will be a problem.
On the other hand, as the number of poor people increase, the rich continue to become richer since they probably own the companies paying the minimum wages. The companies continue paying low while at the same time increasing their profits. This leads to complete imbalance of the income distribution in the country.
The government therefore needs to set up measures to balance the current income distribution and therefore prevent future widening of the divide. This can effectively be achieved through raising the minimum wage in America. However, the minimum wage has been under a lot of controversy with economists and business owners arguing that increasing the minimum wage would lead to loss of employment.
Economic models propose that increasing the minimum wage would lead to losses of employment by the unskilled workers. Other people argue that increasing the minimum wage would lead to increase in commodity prices by the employers to cover for the increased costs thereby beating the reason for the increase. Therefore, does increasing the minimum wage balance the income distribution or does it increase the imbalance?
Does Increasing the Minimum Wage help or hurt?
The federal minimum wage was first set out in the 1930s and has been constantly reviewed to take into consideration the rising costs of living. For such reasons, the minimum wage was not adjusted through out 1997 to 2007 (“Minimum Wage History, para.1”).This is the longest period that the wage remained constant resulting in the current low rates of wages compared to the cost of living.
From 2008, various states responded by setting their own minimum wage levels above the federal minimum wage. Although initially criticized that these increases would harm the poor more than they would help them, studies in those states that increased the minimum wage have shown that the increase led to increased employment and not vise versa (Thompson, para.7).
At a state level, minimum wage increment led to job growth and therefore, the economic models proposing job loss because of minimum wage increase do not hold. Therefore, this should no longer be a barrier in increasing the minimum wage.
The other argument by some business owners is that increasing the minimum wage will force the businesses to increase the commodity prices thereby further increasing the costs of living. This means that minimum wage increase is a cycle that does not lead to a balance in income distribution.
To solve this, businesses should not look at the increased wage as a cost but as an increase in resources. They should look at ways of increasing the output from the workers as the wages they receive increase. This can be achieved, for example, by technological adaptations that will increase the workers’ output.
To solve the problem of the imbalance in income distribution in the United States, the minimum wage should be adjusted to match up with the current costs of living. States like Illinois and Indiana have shown that increasing the minimum wage does not hurt the employment level but it in fact causes employment growth. With better wages, workers will therefore be able to afford a decent living and secure a better future for their children thus reducing the poverty levels and consequently the gap between the rich and the poor.
Eley, Tom. “Working poor report: Nearly 30 percent of US families subsist on poverty wages.” International committee of the fourth international. 16 Oct. 2008. Web. 17 Feb. 2010.
“Minimum Wage History.” U.S. Minimum Wage History. Oregon State University. 26 Oct. 2008. Web. 17 Feb. 2010.
Thompson, F. Michael. “Minimum wage impacts on employment: A look at Indiana, Illinois and surrounding Midwestern states.” Recent Indiana business review articles. Indiana business research centre. 2008. Web. 17 Feb. 2010