The recent research concerning the employment impacts of the minimum wages used a nationwide disparity in the United States. The researchers found an elasticity of -0.1 to -0.3 among the teenagers. For the young adult between 16-24 years, the elasticity was -0.2. The elasticity of -0.1 for the teenagers indicates that when the minimum wage is increased by ten percent, their employment is reduced by one percent (Neumark &Wascher, 2007). Research that was conducted by Neumark and Wascher (2007) indicated that numerous studies found that low minimum wage resulted in the loss of employment for the low-skilled employees.
Latest Minimum Wage Increases and Their Repercussions
Regardless of the indication of loss of jobs, the public and the policymakers have regularly increased the minimum wages in the current centuries. The last increase in minimum wage was in 2009. As a result, 23 states increased their minimum wages too. In those federations, the minimum wage was higher by 11.5 in 2014 as compared to the federal minimum wage. The higher minimum wages have resulted to low job opportunities. The implication of this is that the aggregate employment can change over this period (Neumark & William, 2007).
Fig 1: Percent Variation of Minimum Wages of Various Sates and Federations in June 2014 (Neumark, 2016).
Numerous federations have had minimum wage level higher than that of the national level before the great depression of the 1930s as compared to now. This is illustrated in the figure below
Fig 2: PercentVariation of Minimum Wages of Various States and Federations in June 2007 (Neumark, 2016).
The normal minimum wage was 32.3%. Nevertheless, this is in part because the national minimum wages have been raised to 41% since the economic downturn of 2007. When the minimum wage is compared to that of various states from 2007 to 2014, the smallest number of states had higher minimum wages in 2014. From the above figures, it is clear that the minimum wages were 20.6 higher in 2014 than in 2007. This is compared to an increase of 16.5% in average earnings per hour in the same duration. Therefore, when one looks at the federal wage increases from 2007-2009 and compares it with the current state increases, it is evident that the minimum wage has increased at a faster rate (4.1%) than the economy’s minimum wage over the whole seven-year duration (Clemens & Wither, 2014).
Numerous research findings indicate that when minimum wages are increased, the effect is unemployment rate. For the studies supporting job loss, they estimated that the job elasticity of 0.1 to 0.2 are at a minor range but are more defendable that the estimations have no job effect (Neumark & William, 2007).
When an elasticity of 0.1 is used and applied to the number of unemployed teens, the implication is that the high minimum wages have affected around 18,600 employed teens. At the point when a versatility of 0.2 is used, it doubles and the number to 37,300. When a larger age group of 16-24 is used, and a small elasticity applied to replicate that a minor part of this age set is affected, an approximation of unemployed people increases to 75,600.Suggest that if the low-skilled older grown-ups are also affected, the number is likely to double (Clemens & Wither, 2014).
Research that was conducted by Clemens & Wither (2014) indicates that minimum wages have a direct impact on jobs by around 10,000 to 20,000. This reduces the total employment rate that ought to be measured against the increase in income for the employed individuals on account of increased minimum wages. Besides measuring job losses alongside minimum wage increases the issue of how low wages affect poverty and income disparity is raised (Clemens & Wither, 2014).
Outcome of Increasing Minimum Wage on the Economy
The increase in minimum wage has a positive effect on the economy since it affects the government spending. When wages are increased, the government lessens its spending towards the societal welfare programs. As a result of this, the employees who get low wages will be in a position to cater for their needs, hence depending less on aid from the government. Therefore, the government will reduce its social expenditure and use the money for investment (Dube, Lester, & Reich, 2010).
The Individuals Affected by the Increase in Minimum Wages
The Economic Policy Institute approximates that 28 million employees argue that the increase in minimum wages could reach $10.10 by the end of 2016. The individuals affected are the ones who earn below $10.10 per hour. Therefore, these workers will see their earnings directly increased. On the other hand, those earning above $10.10 will also see their minimum wage indirectly increased because the managers try to sustain the former relative status of the employees in their companies. The majority of the directly and indirectly affected are the women. About 55% of the women are affected because they represent 49.2% of the total employment (Neumark, 2016).
It is clear that minimum wages have both advantages and disadvantages to a nation. As discussed above, it is evident that raising minimum wage may stimulate the economic growth of a particular nation by increasing spending and consumption. Nevertheless, it also affects the low-skilled employees by reducing the employment rates. The employers are also affected since the cost of doing business is reduced. Though the issue of the consequence of increasing the minimum wage is complex, if the unemployment rates can be reduced close to zero percent, the minimum wage can be raised without having a large impact on the workers, employers, and the economy.
Clemens, J., & Wither, M, (2014).The minimum wage and the Great Recession: Evidence of effects on the employment and income trajectories of low-skilled workers(No. w20724). National Bureau of Economic Research
Dube, A, Lester, T, W, & Reich, M, (2010). Minimum wage effects across state borders: Estimates using contiguous counties.The review of economics and statistics,92(4), 945-964
Liu, S, Hyclak, T, J, & Regmi, K, (2016). The impact of the minimum wage on youth labor marketsLabor,30(1), 18-37.
Meer, J, and Jeremy, W, (2015). “Effects of the Minimum Wage on Employment Dynamics”Journal of Human Resources, early publication online.
Neumark, D, and William, W, (2007). “Minimum Wages and Employment:”Foundations and Trends in Microeconomics3(1–2), pp. 1–182.
Neumark, D. (2016). The Effects of Minimum Wages on Employment: Federal Reserve Bank of San Francisco. Retrieved 7 September 2016, from http://www.frbsf.org/economic-research/publications/economic-letter/2015/december/effects-of-minimum-wage-on-employment/
Neumark, D., & Wascher, W, (2004). Minimum wages, labor market institutions, and youth employment: a cross-national analysis.Industrial & labor relations review,57(2), 223-248.
Neumark, D., Salas, J. I., & Wascher, W, (2014). More on recent evidence on the effects of minimum wages in the United States:IZA Journal of Labor Policy,3(1), 1
Richason, O. (2016). Smallbusiness.chron.com. Retrieved 12 September 2016, from
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