Minimum wages and Living wages
A controversy remains amongst economists about whether living wages or minimum wages are the best option to reduce unemployment and increase the standard of living. Minimum wages are the lowest waged paid by employers. A living wage on the other hand is calculated on an hourly basis. It is also based on the requirements of a person to achieve a specific standard of living. This article studies the differences between minimum wages and living wages. It defines both terms and studies their advantages and limitations. Finally the article argues that living wages are more beneficial for workers and the economy.
Lowest wages paid by employers to employees is known as minimum wage. Minimum wages are now implemented in major parts of the world. There is much controversy regarding minimum wages. Proponents of minimum wages argue that it creates employment and ensures that they don’t need to rely on social welfare. Economists however tend to disagree with this as they believe that it creates unemployment (Bartik, 2005).
Minimum wages were first established in New Zealand in 1896. The New Zealand and Australian governments introduced legislation that called for industries to provide a minimum wage for employees. This was extended to all parts of New Zealand and Australia in early 20th century.
The United Kingdom introduced minimum wages in 1909 after studying its affects in Australia (Bartik, 2005). The United States established minimum wages in 1938. Each state of the United States has its own minimum wages law along with federal minimum wages. Minimum wages have been introduced in other parts of the world but they still remain low.
The minimum wage introduced in the United States was $0.25 per hour. Further legislation was introduced which set standards regarding overtime and child labor. The Congress has the authority to pass minimum wage increases in the United States. The frequency of minimum wage increases has been five increases in the 1970s and two increases in the 1980s. In 1997 Congress increased the federal minimum wage to $5.15 per hour (Bartik, 2005).
Several states have however modified the minimum wages according to the economy. There have also been changes inside cities to ensure that employees can meet their basic requirements (Bartik, 2005).
Employees demand for labor while workers are paid wages for their labor in markets. It is believed that rise in wages results in workers pursuing employment and spending less time in leisure. During Clinton’s presidency states were allowed to set minimum wages higher than federal minimum wage (Bartik, 2005). Currently thirty states have increased their minimum wage above the federal minimum wage. Some cities have minimum wages which are higher than even the state. Santa Fe, New Mexico has a minimum wage of $9.50 per which is the highest in the United States. Living
Some people that the minimum wage level in the United States should be linked with the consumer price index. The consumer price index would allow small annual increases in minimum wages. It would prevent larger increases in minimum wages which occur after legislation is introduced.
A living wage is a standard applied for a minimum hourly wage vital for a person to achieve a specific standard of living. The standard of living wage is above that of minimum wage. It usually means that workers should enjoy a specific quantity or quality of accommodation, food, transport, health and entertainment. Living wages are normally above federal or state minimum wages. Various businesses cover living wages for specific workers. The logic behind this is that governments at the city and county level should not subsidize employers who pay poverty level wages.
Living wages are determined by referring to federal guidelines. These guidelines specify what a full time worker needs to earn in one year for a family of four at the poverty level. The logic behind this is that it allows workers a decent income without needing welfare. In some states the cities have higher standard of living. In such places the living wages are higher. The living wage rates vary from $6.25 to $10.75 (Chapman, 2002).
Living wages are different from minimum wages. Minimum wages are determined by federal legislation as the minimum amount that has to be paid for all workers. Local ordinances fix living wages to cover for specific workers and occupations. They usually include businesses that are working for the government. Some people also refer to living wages as being higher than minimum wages which are not enough to support families (Chapman, 2002).
Living wages help protect low paid employees and prevent the generation of jobs which encourage low wages. This results in workers living in poverty. Governments contribute towards poverty by allowing sub contractors to create new jobs with low pay. Living wage laws help to prevent this. Living wage laws result in businesses face the cost of increasing wages and administrative costs. However the expense is worth because of its contribution in eradicating poverty. Local governments can save costs as families will not rely on social welfare schemes and services. Employers also say that the costs of wage increases are countered by increase in worker efficiency and decrease in recruitment and training costs.
Living wages do not create a negative business climate. This is because they have less coverage of the total workforce. No evidence has come up to support claims that businesses are hurt by living wage ordnances. Profit margins have been shown to increase for such companies while wage increases form a small percentage of the companies’ costs (Spade-Aguilar, 2000).
Living wage ordinances have a positive impact on economic development. They prevent firms from moving into localities where wage rates are cheaper. They ensure that good paying jobs will be created. This is beneficial for economic development. Local governments have been very slow in implementing living wage ordinances. Proper guidelines can help in enforcing living wage ordinances. Community groups can play an active role in helping the creation of guidelines and enforcing living wage ordinances.
Living wage ordinances have been shown by research to reduce poverty. Interviews conducted for workers showed that living wages have helped them in supporting their families. The workers were the primary earners of their households according to the interview. There are a huge proportion of workers who are adults among living wage earners. These ordinances help prevent the local government from creating poverty generating jobs. Living wage ordinances are one part of the strategy to eradicate poverty (Spade-Aguilar, 2000).
Supporters of minimum wages argue that it has raised the standard of living. It has contributed positively to economic development. It increases the chances of work. It prevents an economic burden on government resources. It also is beneficial because of its administrative simplicity (Brenner, 2004). A worker only has to report violations of pays below the minimum wage. It requires a small enforcement agency. It breeds consumption by giving more money to poor people who send all their money. The benefits of minimum wages are that they increase the work ethic and decrease government costs in maintaining social welfare programs. It increases the income of poor people.
Opponents of minimum wages argue that workers must be paid according to their skills. They further argue that minimum wages would reduce business. They also point out that minimum wages does not contribute to economic development. They also say that it increases unemployment rate. Some economists have supported this view that minimum wages increase unemployment (Brenner, 2004).
Others consider that minimum wages hurt small businesses and reduced competition level. It reduces the demand of workers. It is also believed to reduce profit margins of companies. Further opponents of minimum wages say that it does not help in poverty eradication. Minimum wages are considered to restrict the freedom of employers and employees. They result in preventing workers from working at a minimum level. Other disadvantages are that it prevents workers from gaining training to move up the ladder. Increase in unemployment, off shoring and inflation are some of the other negative aspects of minimum wages.
Living wages are based upon the concept that limited dollars should not be used by governments to subsidize poverty related jobs. Subsidized employers pay their workers less than living wages which results in tax payers paying an initial subsidy and then social welfare services required by workers to support their families. On the other hand if those dollars are used by private employers, they provide decent jobs to poor communities (Brenner, 2004).
Proponents of living wages argue that it is vital because of the failure of minimum wages to keep pace with inflation. The growing gaps between the rich and poor also have resulted in much loss to the workers. There have been cuts in welfare services which have placed additional pressure on the low income workers. Service sector jobs offer low wages and labor unions have been weakened (Michael, 1995).
Detailed surveys conducted have found that living wage laws benefit workers and have little negative impact. They have also demonstrated increased productivity and a decrease in employee turnover (Michael, 1995).
Opponents of living wages argue that the municipality might face rising contract costs due to the cost of the living wage. However studies have found out that the cost of contracts does not rise. The price increases have a negligible impact on municipality budgets.
Several studies have been conducted which have researched the competitiveness of the bidding process after a living wage ordinance is implemented. 30 firms were surveyed and it was found that for at least 18 of the firms the contract costs did not change. Several firms have found it easy to compete for city contracts after the implementation of living wages ordinance (Michael, 1995).
Living wage ordinances have been recently introduced. Most predictions by opponents of living wage ordinances have failed to come true. Studies have shown that there was no significant increase in costs for cities after the implementation of living wages ordinance. Further there was no indication of unemployment or job loss. It was also proven that the ordinances increased the wages of low skilled workers. The income and poverty reducing effect was also substantial. These ordinances have been essential in countering the negative economic trends which have affected poor workers. The Los Angeles living wage ordinance was researched. It was found that 17 out of 30 firms did not have an increase in contract costs. Employment levels also dropped although it was very modest. Wage benefits were brought to a workforce that amounted to 2.5 million dollars (D.C. Fairris, 2005).
Living wage ordinances represent a small percentage of the market. Therefore companies will absorb the increase. They may try to pass the higher prices through the consumers. They however fact tough competition and to implement such high prices would be difficult. The increase in costs would be absorbed by efficiency gains. Employee morale and productivity is increased due to increased wages. Employment stability is achieved through living wage ordinances. The average quality of job applicants also improves due to living wage ordinances. There is also a lower employee turnover due to these ordinances (D.C. Fairris, 2005).
Living wages does have its critics and opponents. They suggest that it harms low wage workers and increases unemployment. They argue that living wages are artificial prices which decrease labor demand. Further it is said that living wages can cause inflation, decrease the purchasing power of workers and does not make them better off. The opponents of living wages also believe that government has no right to intervene in the marketplace. They believe that this creates a negative impact on the economy. Further instead of reducing poverty by the entire society it becomes the job of employers who hire the least skilled and experienced workers (D.C. Fairris, 2005).
Many economists and policy makers are of the opinion that living wages result in business benefits. Higher wages reduce employee absenteeism. This leads to lower costs for recruitment and training. Entire local communities benefit from higher wages. Low wage workers are more likely to spend their earnings on their local communities thus ensuring a circulation of money. This becomes an excellent source of building the local community. By making the workers more self sufficient business productivity increases. New markets are open which play a vital role in poverty eradication. Local communities are strengthened. The demand for government backed welfare schemes is also reduced (D.C. Fairris, 2005).
While many business people are supporting living wages, some local and national organizations have been opposed to living wages. They assert that living wages cause inflation, unemployment and hurt the poor workers more. The poor worker is not better off due to an artificial increase in wages. This also reduces labor demand.
There has been no conclusive proof that living wages actually cause unemployment. Surveys conducted in Baltimore and Los Angeles found no evidence of any unemployment. The vas majority of research concludes that there is little or no job loss due to living wages. The clearest evidence for this is that increases in federal wages in 1996 continued to produce jobs in the economy (Howes, 2005).
Opponents of living wage policy also say that such a policy will force businesses to switch to cheap localities and be an obstacle to investment. However this has been countered by the fact that many businesses value their assets based upon locations. Many businesses like hotels, universities and professional services are based upon locations. Moving out of the city would be last resort if wages are increased. Relocation also carries many costs. Baltimore a city which adopted the living wage ordinance has not seen new investment deterred due to the high wages. There have been no economic losses in the city. Other arguments against living wages are that the jobs done by low skilled workers do not deserve a higher pay. This has been countered by the fact that people working at restaurants or nursing sick patients deserve the right to earn decent money to support their families. They have the right to be able to afford adequate housing, transportation, health, utilities, education and leisure. Another argument against living wages is that the majority of low paid workers are teenagers. However studies have found the primary beneficiaries of high wages have been adults.
Minimum wages are the lowest wages paid to employees. Minimum wages is considered to the increase the standard of living, contributed to economic development, prevented an economic burden on government resources and is beneficial because it requires a minimum enforcement agency. Opponents of minimum wages minimum wages reduce business, retard economic growth and make the workers poorer. They have also attributed to its negative impact on the economy (Howes, 2005).
Living wages are different from minimum wages. Minimum wages are determined by federal legislation as the minimum amount that has to be paid for all workers. Local ordinances fix living wages to cover for specific workers and occupations. They usually include businesses that are working for the government. Some people also refer to living wages as being higher than minimum wages which are not enough to support families. Living wages help protect low paid employees and prevent the generation of jobs which encourage low wages. This results in workers living in poverty. Governments contribute towards poverty by allowing sub contractors to create new jobs with low pay. Living wage laws help to prevent this. Living wage laws result in businesses face the cost of increasing wages and administrative costs.
Bartik, Timothy. 2005. Thinking about local living wage requirements. Urban Affairs Review. Vol. 40, No. 2, pp. 269-99
Brenner, Mark D. 2004. The Economic Impact of Living Wage Ordinances. Working Paper No. 80. Amherst, Mass.: Political Economy Research Institute, University of Massachusetts, Amherst.
D.C. Fairris, David. 2005. The impact of living wages on employers: a control group analysis of the Los Angeles ordinance. Industrial Relations. Vol. 44, No. 1, pp. 84-105.: National Academy Press.
Howes, Candace. 2005. Living wages and retention of homecare workers in San Francisco. Industrial Relations. Vol. 44, No. 1, pp. 139-63.
Jeff Chapman. 2002. Time to Repair the Wage Floor: Raising the Minimum Wage to $6.65 Will Prevent Further Erosion of Its Value. Washington, D.C.: Economic Policy Institute.
Michael, Robert T. l, eds. 1995. Measuring Poverty: A New Approach. Washington,
Spade-Aguilar, Maggie. 2000. How Much is Enough? Basic Family Budgets for Working Families. Washington, D.C.: Economic Policy Institute.