Wage Determination and Minimum Wages


Minimum wage refers to the lowest hourly compensation paid to a worker. This is the minimum rate that workers are offered in exchange for labor. The determination of minimum wage is always under conflict in that its supporters and those who are against hold divergent opinions. Supporters of minimum wage argue that it helps to improve the living standard of the people. On the other hand, those opposed to it term it argue that incase it is raised this increases the rate of unemployment. However, no company can manage to remain competitive by paying their workers less (Carrington and Bruce 18).

Every worker should receive an amount of pay that in commensurate to their input. In addition, such a pay should also enable them to pay for their basic needs. The minimum wage Act was established in order to ensure that every worker has sufficient wage to provide for his essential needs (Spriggs and Bruce 17). The minimum wage sets the minimum hourly rate that an employer must pay to the workers especially those not permanently employed. This law ensures that the less educated and less skilled in the workforce are not underpaid. However, the current minimum wage paid to workers may not be enough to meet their expenses (Carrington and Bruce 2001).

With the current economic downturn, inflation has set in and the Americans who earn a minimum wage will hardly be in a position to meet the rising living cost. Therefore, the law of minimum wage should be revised in order to help uplift some families from the poverty line. This will have positive economic effects. For example, it will help to minimize discrimination of the minorities and women, and stimulate spending by strengthening consumer purchasing power hence putting back money to local economies.

Why the current minimum wage is not enough

The current minimum wage in America is 5.15$ per hour, although it has not been revived since1997. With the current inflation rates, the minimum pay is not relevant since it is hardly enough to meet the current rising cost of living (U.S. Census Bureau 5).

The value of minimum wage does not change with the inflation hence the employer also cut the overtime hour leading to a reduction in an employee’s overall earning. Consequently, this makes it impossible for the workers to meet their day to day expenses. The minimum wage has been decreasing in comparison with the rise in inflation rates and other economic factors (Spriggs and Bruce 17). This scenario is best depicted in the figure below.

Minimum wage as percent of average hourly wage

It is therefore important for the policy makers to quick address the issue since with the minimum wage failure to keep pace with the rise in inflation leads to stagnated growth since there is reduced purchasing power hence depressed standard of living. The current minimum wage fails to meet the needs of the workers. There is increase in health cost since the living standards in unite states has also increased. Therefore, many people end up living below the poverty line. There will be the need to improve the current minimum wage since it will cater on the discriminated groups which are minorities and women whose wages will be boosted.

This will have an adverse effect on the economy since with the increase it will increase consumption hence an increase in purchasing power (Spriggs and Klein 17-18). Business owners are against a proposed rise in minimum wage as it will result in unemployment. This is because most firms will be forced to lay off the workers in order to meet the pay of the few left. There will also be reduced overtime hours to work, though these effects with well formulated policies can be avoided.


Minimum wage need to be raised. With the economic downturns such as inflation, the current minimum wage does not enable the minorities meet their daily needs. Consequently, there has been a resultant increase in levels of poverty. In addition, there has also been a decrease in the purchasing power of many workers and this has a negative impact on the economy (Spriggs and Bruce 18). Therefore for an excellent economic performance the government needs to set polices that will help rise the wages for the workers these policies will also cater for the business people so that they do not suffer from the increase in the minimum wage.

The set minimum wage should be in position to ensure equitable distribution of income, compensate for the rise in the living cost due to inflation and geographical areas, in effect helping to end exploitation. This can only be achieved through fair wage agreement of minimum wage increase.

Works Cited

Carrington, William J., and Bruce, Fallick. 2001. Do some workers have minimum wage careers? Monthly Labor Review, 124. 5 (17-27).

Spriggs, William, and Bruce, Klein. Raising the Floor: The Effects of the Minimum Wage on Low-Wage Workers. Washington, D.C.: Economic Policy Institute, 1994. Print.

U.S. Census Bureau. Poverty in the United States: 2002. Washington, D.C.: U.S. Census Bureau, 2003. Print.

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