HR term paper: Minimum Wage Setting

Minimum Wage Setting
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Minimum Wage Setting
Minimum wage is the least amount of compensation an employee should get according to the laws of a given country. As a result, it is illegal for an employer to pay his/her employees an amount less than the minimum wage. The aim of setting a minimum wage is to protect employees from exploitation, enabling them to afford various necessities of life. Minimum wage fluctuates from one country to another, and in some instances from one state or province to another. Goals associated with minimum wage are widely accepted as right and practical. However, there is less agreement whether minimum wage is effective in achieving these goals. Since its introduction, minimum wage has always been controversial in the political arena. It has also received less support from economists, who claim that minimum wage brings about unemployment (Austen, 2003). This paper explores some of the social norms associated with minimum wage. It also discusses how minimum wage influences cost of living; market rates; incentives; and productivity.
Many governments adopt minimum wage setting in order to close the gap between the rich and poor. According to some economists, minimum wage can be used to reduce the income gap between the poor and rich in the log-run, but not short-run. This is because employees in the long-run can fully satisfy their basic needs, and as a result, their children can concentrate on their studies. At the end, there will be no lowly skilled employees. However, there are too many drawbacks associated with such an objective, like increased taxes because of increase in the employee's annual income (Vitez, n.d.).
How minimum wage influences employment has been one of the most prominent issues with respect to the evaluation of minimum wage policies. It has also been one of the widely researched topics in economics. Setting of minimum wages increases the rate of unemployment because many employers start looking for the best skilled employees or reducing the number of employees so that they can maximize profits if the minimum wage has increased the costs of production. The mostly affected employees are the lowly skilled ones. They usually lose their jobs to the few high skilled employees. Companies take this initiative in order to maximize their profits, and at the same-time minimize costs of production (Cunningham, 2007).
Adoption of minimum wage policies often leads to an absolute distortion of free market economies. Normally, free market economies depend on the interaction of supply and demand. If companies have a demand for employees, they fulfill it from the current supply of individuals in the market. However, if the government restricts the employment of these individuals to a certain wage, companies may find it difficult to fill their demand of work force. This is because of the fear of increased production costs brought about by the high wages (Wilson, n.d.).
If the government advocates for a minimum wage increase, the more skilled and educated employees will also seek for a higher pay, since the lowly skilled employees have received a pay rise, not because of influence of market forces, but the government policies. This creates a state of volatility in the labor markets as the high skilled employees are compelled to reassess their value upwards. Employers may accept or reject the pay rise. Mostly, they will accept the pay rise in order to ensure the productivity level does not fall due to the employee-employer disagreements. Due to wage increase, employers will have demand for the highly skilled employees. They will also seek for more qualifications from potential employees apart from their educational qualification. For instance, some employers can seek to have employees with a certain number of years of experience in a certain field. Therefore, those without such a qualification may find it difficult to secure a job (Richards, Cohen, Klein & Littamn, 2008).
Although minimum wages ensure a higher pay for the lowly paid employees, it pushes the employee's annual income to a higher tax bracket. Therefore, the individual will experience a higher tax on his income than it used to be. Since minimum wage employees have less wealth than the other employees in the economic marketplace, what they thought they will enjoy as a good pay will be eroded by the high taxes. They will also incur other increases like in Medicare or Social Security, which will also lead to their reduced net income. On the other hand, high skilled employees will have a higher living standard, since their increase in salary will not be subject to an increase in the annual taxes paid. As a result, there will be an increase...