Macroeconomics: Should the Minimum Wage Increase? Essay

Minimal pay is the lowest pay permitted by jurisprudence or by a particular understanding that can be applied for an employee or set merely. the lowest sum of wage that an employee can do. Governments set a minimal pay on concerns in hope for decreased poorness and additions in the criterion of life. Minimal rewards are good up to a line. when minimal pay is excessively high. it makes concerns make important determinations and must salvage money by firing workers. cut downing end product. and increasing monetary values on merchandises. Over the old ages. the federal lower limit pay has increased and has been good up to the lower limit pay addition in July 24. 2009 from $ 6. 55 to $ 7. 25. After the addition. the unemployment rate has soared and concerns fired worker and increased their monetary values. For this ground. it would be good to the economic system if the lower limit pay is reduced back to $ 6. 55 because it will diminish the unemployment rate. addition GDP. and assist young person and unskilled workers in the occupation industry.

The Great Depression was a annihilating clip for the United States with households holding no income. there was no economic growing. and the poorness rate was at an all clip high. To assistance with the affair. President Roosevelt attempted to enforce a federal lower limit pay but was struck down by the Supreme Court. The Court continued to decline to hold a federal lower limit pay over and over once more. It was until take a presidential campaigner. and made a platform that supported minimal rewards by the party’s presidential campaigner. Alf Landon. After this. the Court decided to let a minimal pay. Over the old ages. the authorities has increased the minimal pay from 25 cents in 1938 to $ 7. 25 in 2009. The current argument in Congress now is that President Obama wants to raise the minimal pay to $ 9. 50 which is traveling to be a bad thought for the economic system. diminishing the lower limit pay will profit the economic system for grounds that will be stated now.

Human labour is really of import to concerns even though engineering is quickly bettering but if the lower limit pay additions. the cost of human labour additions. so to cover with this. concerns must diminish end product. additions monetary values. and finally fire employees. So if the lower limit pay additions. the unemployment will besides finally addition. Evidence of this occurring is
seen through a recent lower limit pay addition from $ 6. 55 to $ 7. 25. When the minimal pay increased from 2008 to 2009. the unemployment rate about doubled. In 2008. the unemployment rate was 5. 5 % and in 2009. it increased to 11. 2 % . Decreasing the lower limit pay will change by reversal this because human labour is cheaper. therefore concerns can increase end product. lower monetary values. and engage more employees. This rapid addition unemployment rate is unwanted because of the immense economic cost for GDP. The economic cost is determined utilizing Okun’s Law which is to duplicate the unemployment rate to happen the GDP spread. so the GDP spread for the twelvemonth 2009 is 22. 4 % . Multiplying the GDP spread with the possible GDP gives the economic cost. The possible GDP in 2009 was about $ 13750 billion and multiplying this with the GDP spread 22. 4 % gives the economic cost of $ 3080 billion ( McConnell. 2012. p. 175 ) . The cost of this was manner excessively high and the cost will increase much more if the lower limit pay is increased. but if the lower limit pay was decreased. possibly the economic cost can be reversed.

If the minimal pay can be decreased. the unemployment rate will besides diminish. and GDP can increase. GDP is a pecuniary step of the wellness of the economic system. This is calculated by adding up all the outgos made on concluding goods and services in the U. S or adding all the income mad in the U. S. If minimal pay is decreased. concerns and houses can increase end product with more employees and lower monetary values. Since there are lower monetary values. there will be a higher demand so more goods and services can be sold therefore increasing GDP doing a bigger and healthier economic system. For illustration. a adult male sells Burgers and hires 10 people at $ 7. 25 and minimal pay goes up to $ 9. 50. the cost of ingredients goes up. The labour that is used in conveying the beef to market is paid with minimal pay. If those rewards go up the cost of bring forthing the beef will travel up. finally driving up the monetary value of beef. The adult male now can’t afford the monetary value rise on natural ingredients because it will do him to run at a shortage. Alternatively he will hold to raise monetary values and sell less Burgers or do less end product. Since there is less end product to be made. fewer employees are needed so employees are fired. Since there is less Burgers to be sold and it is at higher monetary values. non a batch of consumers will buy the Burgers and therefore GDP will diminish.

Decreasing the lower limit pay will non merely diminish unemployment and increase GDP ; it will besides profit the working young person and unskilled workers as good. If the lower limit pay decreases. concerns and houses can afford to engage more employees. including youth workers and unskilled workers and can develop them. This gives young person and unskilled workers valuable experience which can assist them with future occupation chances. If the young person and unskilled workers can at least acquire a occupation. they can work their manner up the ladder and utilize the experience they get from the lower limit pay occupation and utilize it as they rank up or prosecute higher income occupations.

There are many grounds for why diminishing the minimal pay would profit the economic system but there are those who oppose this position. Those who oppose this position say that diminishing the lower limit pay will ache the economic system because take downing the minimal pay decreases the income of households so that they can buy fewer goods and hence decrease the GDP growing rate. There is another statement stating that is merely just to give an employee a “living wage” and can back up at least a household of two for 40 hours a hebdomad. This is untrue because most employees that work minimal pay don’t work 40 hours a hebdomad anyhow so it is already non a life pay but they don’t take the occupation for the short tally. they do it to derive experience and can in the future work with other concerns that require past experience and will pay the employee a higher pay. As stated before. employees can work their manner up the income ladder.

Decreasing minimal pay is good to the economic system because of many grounds. It is good because it reduces the unemployment rate. increases the GDP. and helps young person and unskilled workers with future occupation chances. This can be done by first declining Obama’s program of increasing minimal pay. and so get downing a measure to cut down minimal pay. Minimum pay is needed to forestall employees acquiring an unjust wage but there is a bound on it. don’t raise the minimal pay excessively much Mr. President.

2050. . & A ; 2000. u. f. ( n. d. ) . Congressional Budget Office ( CBO ) . Congressional Budget Office ( CBO ) . Retrieved July 24. 2013. from
hypertext transfer protocol: //www. cbo. gov/ Brownstein. R. ( n. d. ) . A Short History of the Minimum Wage Fight – NationalJournal. com. NationalJournal. com. Retrieved July 24. 2013. from hypertext transfer protocol: //www. nationaljournal. com/politics/a-short-history-of-the-minimum-wage-fight-20130214 Macroeconomics. planetary edition ( 19 erectile dysfunction. . p. 175 ) . ( 2012 ) . 9. S. l. : Mcgraw Hill Higher Educat. Shemkus. S. ( n. d. ) . Increasing the Minimum Wage: Pros & A ; Cons – Salary. com. Welcome to Salary. com – Salary. com. Retrieved July 24. 2013. from hypertext transfer protocol: //www. salary. com/increasing-the-minimum-wage-pros-cons/ U. S. Bureau of Economic Analysis ( BEA ) . ( n. d. ) . U. S. Bureau of Economic Analysis ( BEA ) . Retrieved July 24. 2013. from hypertext transfer protocol: //www. bea. gov/index. htm U. S. Department of Labor – Wage and Hour Division ( WHD ) – Minimal Wage. ( n. d. ) . United States Department of Labor. Retrieved July 24. 2013. from hypertext transfer protocol: //www. dol. gov/whd/minwage/coverage. htm


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