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Reasons To Raise Minimum Wage Essay, Research Paper

Raising minimum wages actually promotes growth (Meroney, 1995) and will have a positive effect on the economy. The positive effect will come from promoting job growth. This statement was made by U.S. Labor Secretary Robert Reich. Reich recommended that the minimum wage of $4.25 and hour be pushed up to $5.15 an hour over a two-year period. Reich said, it has been shown that pushing the minimum wage up, would assist in welfare reform, and lower the number of persons on welfare, by making wages high enough to motivate people to go to work, rather than stay on welfare. And with more people in the job market, with more money to spend, increases would be shown in both gross national product sales, and an increase in taxes derived from sales taxes.

Although the anti-minimum wage faction states that raising the minimum wage would put more people out of work, a study in 1992 by Larry Hunter, the chief economist for the Joint Economic Committee, stated that after interviewing restaurant owners regarding the effects of raising minimum wages, it was found that no jobs were lost. The study was done in New Jersey, where the legislature had boosted minimum wage to the highest level in the United States (Meroney, 1995). What happens said Hunter, is that people don t go out and begin firing workers after a raise in minimum wages. You just adjust.

A negative in adjustment sometimes comes in the form of lowering the number of total hours worked by employees while encouraging the workers to increase the amount of work out put in job performance. But overall, the study indicated that lower minimum wages actually encourages more mothers on welfare to stay on welfare. Where minimum wages were the lowest, there were the highest rates in persons on welfare.

Another argument for raising minimum wages comes from the view that higher wages increases purchasing power (Rothstein, 1993). Low wages results in the inability of the U.S. to absorb exports, and a need to sell goods at lower prices in the American market. Low-wage competition from the nations with low wages, then puts pressure on the U.S. living standards as domestic manufacturers cut wages and benefits to compete. Wage growth in developing nations is therefore essential not only for their own welfare, but for the welfare of the American workers as well. Because of the current trend in unregulated free trade, if wages are not raised to increase Americans purchasing power, the problem of the inability to absorb exports will be exacerbated. This will cause the international competitive environment based on low wages to act as a permanent brake on income growth in developing nations, which will then deny American exporters consumer markets and growth in income.

An increase in minimum wages, therefore, should be encouraged world-wide, because if workers in other countries are too poor to purchase their own products, then their employers will have no choice but to export to the developed world products that are cheaply priced. Furthermore low wages in foreign countries, contribute to political instability (Rothstein, 1993), in which the U.S. has a stake, in that it is often the U.S. taxpayer that has to bail other countries out of financial dilemmas or increase defense spending to keep the peace in countries that are unstable and a threat to the U.S. because of economic disparity. It is also argued by Rothstein that although free trade is now a reality with great expectations, the success of Asia and especially South Korea and Taiwan, was achieved through severe trade protection, tight state controls on capital and labor unions, and manipulating exchange rates. Worker salaries were also regulated, but with the intent to allow the workers to buy the products made in the home country to lessen the costs of exporting, with much of the profits staying in country.

In so-called free trade countries such as the U.S. imports and exports may be shared without penalties or tariffs, but the workers salaries are regulated by corporate ownership. Therefore, free trade is a misnomer, in that the major part of manufacturing is regulated by not

only by the corporation, but by government wage policies. Argentina is just now finding out that increased minimum wages, also results in increased tax-collections that could be of major benefit to the poor (Rothstein, 1993).

Since 1991, Argentina has demonstrated the highest level of economic growth in Latin American, averaging almost 9% a year. The International Monetary Fund is now using Argentina as a growth and economic model. The only problem with Argentina is that the oppressive and corrupt government has not used the increase in tax collections for enhancing or providing public services, and public unrest is beginning to affect the country s economic and political stability.

Therefore, an increase in minimum wage, be it in the U.S. or elsewhere must be tied to an increase in public services to be effective.

Mexico is another case in point for the effects of lower minimum wages. Although Mexico has statistically demonstrated an increase in the balance-of-trade statistics, by increasing manufacturing with the products final destination as the U.S., what good is exportation, if in return the Mexicans cannot buy U.S. products. A continued lower minimum wage in the U.S. will affect the balance of trade elsewhere, and currently such heartening statistics as is demonstrated in Mexico, is only a `shell game with disastrous results which are sure to occur in the near

future. It is higher minimum wages and labor standards that are the engine of both domestic and foreign growth. Higher minimum wages also assists in relieving pressure on American manufacturers to reduce wages at home by supplementing external export markets.

Many people forget that historically the legislation that

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