Should the Minimum Wage Be Abolished?

Introduction
The issue on Minimum-Wage laws is still contentious and highly debatable. Some economists say minimum-wage laws are harmful; other say they aren’t. In this paper, we will be discussing the merits as well as the problems that minimum wage may pose to the economy.

Alternative Solutions I. Yes

A. Marginalized workers
Minimum wage harms a large percentage of the working groups, mostly the marginal workers which includes teenagers, the less educated workers and the more aged workforce. Based on the 2005 data released by the Bureau of Labor Statistics, the law also discriminates workers belonging to ethnic minorities. The unemployment rate for Hispanic and Black teens belonging in the 16-17 age groups were 25% and 40.9, respectively. This high percentage can be brought down if only the minimum wage is abolished so the society can maximize the number of young people who are willing to work, even if it’s for small wages. Having a paying job for the young workers teaches values such as discipline, hard work and responsibility.
Most of the minimum wage jobs benefit the workers with a set of marketable skills. Therefore setting a higher minimum wage would lead employers to require a better set of learned skills from its applicants.[1] But if we let businesses to pay smaller entry wages, they will offer more opportunities to jobseekers with no experience. The jobseeker can now gain valuable experience that can then serve as a stepping stone that will lead them to gain a better paying job.

B. Encourage businesses
Abolishing the minimum wage will also allow businesses to achieve greater efficiency and lower prices. As cost of labor goes down, business output goes up since more workers are hired to finish a certain job. Also, the price of business products and services will go down relative to the wage flexibility exercised by a company.
In relation to that, abolishing the minimum wage will also discourage companies from outsourcing to other countries with better labor policies or lower wage rates. Companies who are trying to cut costs are enticed to hire workers to achieve a level that’s competitive. The best condition for a business to grow and compete is to give them greater flexibility in maximizing profit and minimizing cost.

All companies will be affected by minimum wage laws, including small companies and non-profit organizations. Most of these firms which thrive on low productivity workers to sustain daily operations will be forced to absorb the increase in labor costs. These firms can either reduce staff or cut costs in certain areas of their businesses.
In the case of small companies, prices will be raised to cover the labor costs and customers will be forced to look for product alternatives and result to a decrease in revenues. Some small companies and non-profit organizations may eventually have to close down if they are unable to cope with the changes that the increase in minimum wages may impose.

Furthermore, setting a standard minimum wage for a territory with varying costs of living may be difficult. A certain minimum wage in a country may be just right for a certain area but be too high for other areas. For example, a minimum wage of seven dollars per hour may be just right in the city but may be too high for rural areas.

C. Labor alternatives With the increase in labor costs mandated by the minimum wage law, firms may find it more practical to invest in machines to replace staff workers. Tasks such as running a cash register or even digital marketing can now be automated. Not only will automation be less expensive, it may also be more efficient and less time-consuming.

D. Global competitiveness
In a competitive global economy, companies strive to create affordable yet high quality products since they attract more consumers. Evidently, products which are cheaper but are equally reliable as their counterparts receive more attention since consumers have the ability to buy them. In order to achieve this, companies create efficient ways to maximize labor to meet market prices. Lowering the cost of labor definitely makes the product cheaper. Such countries with high minimum wage have difficulties in making their product’s prices as low as possible.
By setting a minimum wage, companies are more likely to impose a higher selling price per product since the cost per hour of direct labor goes up. This sets a disadvantage to the company. A good example is that US companies will definitely work harder to compete globally against foreign countries since they have a high minimum wage. Other (foreign) companies without minimum wage definitely have an advantage in controlling these prices since they can hire people that can produce the same products with less labor costs. These companies can also increase the quality of their products since they can hire more people to do the job.

E. Unjust wages will not be tolerated by employees either
The government surely has control over companies since they impose the minimum wage law, however they do not see the bigger picture that imposing a minimum wage will reduce company efficiency, competency and employment. Evidently, an annual increase in minimum wage will only worsen the situation. Minimum wage decreases employer’s production efficiency thus affecting the profit that they can potentially receive, and this inability to make good profits will lessen their ability to hire workers which will result in unemployment. F. GDP decreases as unemployment increases as a result of imposing minimum wage
It is estimated that for every 1% increase in unemployment corresponds to a 2.5-3% decrease in GDP. Abolishing minimum wage might not necessarily increase GDP but it will definitely have a positive effect on GDP. The bottom line is that imposing minimum wage negatively affects the country’s GDP and its economic efficiency. Minimum wage not only increases unemployment but also decreases GDP as well.

G. Singapore as a country without minimum wage.
Some developed countries in the world do not have a minimum wage law and this might be the reason for their success. An example is Singapore. They believe that they can be more competitive as a result of not having a minimum wage. Even though they do not have a minimum wage, their unemployment rate is low usually in the range of 2% based on manpower statistics as seen on Table 1. Their employment or manpower is also increasing from 2011 to 2012.

Table 1. This table shows Unemployment and Employment of Singapore based on a 2011 to 2012 statistics.
Eliminating minimum wage does not entirely improve country’s economic status but evidence from statistics show that it can. Some countries are more effective in doing this than others but positive effects can surely be seen.

H. No minimum wage makes people work harder and this helps the economy.
Eliminating minimum wage increases employment especially in the teenager, ethnic minorities, workers in training, part-time workers and the uneducated sector. When this happens, job opportunities will increase and more people will definitely have the chance to work. By being able to work, people will definitely learn to appreciate the value of labor and responsibility, not to mention that they receive money to support themselves. Being able to work even for a small amount of wage is still better than not working at all. People that are given the chance to work will definitely want to make more money and they will definitely want to work even harder. Acquiring new job skills will also made them realize their importance in the market which also makes them want to work harder. As a result, the economy benefits from their labor.

I. Minimum wages and labor laws may discourage foreign investors
Since our local labor laws have been very restrictive, many foreign investors deem feel that investing in the Philippines will not be very lucrative. Strict minimum wage laws, coupled with the constitutional restriction in ownership of companies locally, will surely ward away our foreign investors.
This may be the most disturbing effect of the minimum wage laws, as foreign investments will not only create jobs that are counted in the thousands, but also deprive us of the opportunity to learn the new technologies that these jobs may bring. Furthermore, these foreign investments will be working in conjunction with local firms, and this demand will surely create even more jobs for the unemployed.

II. No A. These wages were studied
This section poses the alternative that minimum wage and living wage laws should not be abolished. These pieces of legislation were established as a sound economic policy with certain goals to uphold. They were initially established to keep people out of poverty and to help eradicate demeaning exploitation of children, young workers and minorities.
These rates are not arbitrarily established. They go through much analyses and considerations before being announced accordingly. They are the result of much research in the areas of economics, standard of living and inflation, labor supply and the effects of rising unemployment. According to the Labor Code of the Philippines, many agencies are involved in establishing these minimum wage rates. They operate under many stipulations cited in the Labor Code. In the Philippines, the Department of Labor and Employment appoints a National Wages and Productivity Commission to as a research and oversight body of Regional Tripartite Wages and Productivity Boards that determine these wages across the many regions of the country.
Supporters of these floor wages are convinced that the goals for establishing them are being met. Thus, these laws are still in place. They ensure that workers are given a fair wage regardless of gender or race and are therefore paid properly for their work. It keeps employers from the exploiting those in the workforce. B. Encourages consumption
There is also the belief that minimum wage stimulates consumption. Since low productivity workers at the lower end of the salary scale are empowered with better wages, they, in turn, have more leniency to put more money into the economy by allowing themselves to spend more. This also has implications on the work ethics among employees who receive better wages. These better wages also translates to more people joining the work force, rather than seeking other illegal means of earning money (e.g. drug trafficking, prostitution). C. Prevents child labor
In the age of globalization wherein outsourcing is a major trend done by most companies, establishing a minimum wage helps do away with sweat shops and child labor and insures that people are paid properly for their work. Minimum wage also protects younger workers and minorities from being paid less than others to some extent. It also has implication on the preservation of proper education among teenagers or children exposed to child labor and, in effect, it protects teenagers from child labor and instead keeps them in school. D. Small effect
In Wicks-Lim’s (2006) article in defense of minimum and living wage laws, she mentions the phenomenon of the ripple effect or the chain reaction of wage increases and its role in establishing wage floors as an antipoverty strategy. She explains that ripple effect acts as “double-edged sword for minimum-wage and living-wage proponents.” If the ripple effects are small then only a few would benefit from it. If the ripple effects are large enough, they can help improve the lives of the working poor. To counter the argument that minimum-wage laws are “job killers” due to the inability of employers to absorb the higher wage costs, Wicks-Lim presents evidence that “businesses are not overwhelmed by the costs of a higher minimum wage, even including ripple effects [raises]” because they only account for “cost increase on employers amounting to less than one-half of 1% of their sales revenue.” This supports the consensus that there is “minimal job loss, if any, associated with minimum-wage increases.” Her article also debunks the argument that minimum wage only benefits and encourages young workers such as teenagers or students who work for spending money. In fact, author’s article cites the majority of beneficiaries are adult workers and that “ripple effects decreases the prevalence of teenagers and traditional-age students affected by minimum-wage increase.”

Conclusion The minimum wage law has been in place for many years, and has been practiced by the industry for decades. Of course, this law truly has its benefits, which include the ability of the masses to consume more, and ensuring the education of the children who are not into child labor. Some even argue that these benefits, together with our moral obligation, has very little detrimental effects in order for us to fulfil. It can be seen however, that the costs of these minimum wage, is not only reflected on the balance sheets of the companies who are afflicted with the minimum wage, but also the country as a whole. We also have to take into consideration the situation of the unemployed. If we take a look at the statistics here in the Philippines, it will be shocking to find that we have a 25% unemployment rate. Meaning 25% are willing to participate in the labor force, but are unemployed because the skills that they possess does not amount to the minimum wage that is being imposed by the law. This will therefore deem them unemployable. Furthermore, those who are deemed unemployable due to the current minimum wage rates will be deprived of the opportunity to gain experience in the field. This would then leave make them unable to reach higher wage rates that are equivalent to the minimum wage. Minimum wage rates actually affect the GDP of our country. In fact, when we look at the bigger picture, the Philippines has suffered great losses in terms of GDP due to the minimum wage law. By simply imposing the minimum wage law, many of the local companies have been forced to close, therefore lowering the country’s GDP. To make matters worse, however, many of the country’s foreign investors have opted to move to other countries including China, Vietnam, Malaysia, Indonesia etc. due to their less restrictive labor laws. Surely, the loss of a potential profit from foreign investment will lower GDP. We can therefore say that the minimum wage law is simply more harmful in the long run. It will harm the workers who could have been employed, and it would also harm the overall market productivity since it would hinder the market from creating more jobs for the people to be employed.

References:
Chan Robles Virtual Law Library (2010). The Labor Code of the Philippines. Retrieved June 21, 2013 from http://www.chanrobles.com/legal4labor3.htm

Debate.org. (2013). Minimum Wage Debates: History and Debate of Minimum Wage. Retrieved June 20, 2013 from http://www.debate.org/minimum-wage/

Greene, B. (2013, Feb 24). What if there were no minimum wage?. Retrieved June 20, 2013 from http://edition.cnn.com/2013/02/24/opinion/greene-minimum-wage

Harder, K. (2013). Philippine Labor Law. Retrieved June 20, 2013 from http://www.ehow.com/about_6464084_philippine-labor-law.html

Jones, P. (1997). The Impact of Minimum Wage Legislation in Developing Countries where Coverage is Incomplete. Retrieved June 21, 2013 from http://economics.ouls.ox.ac.uk/14547/1/9802text.pdf

Morgan, L. (2013). The Advantages and Disadvantages of Minimum Wage. Retrieved June 20, 2013 from http://www.ehow.com/list_6637637_advantages-disadvantages-minimum-wage.html

Wicks-Lim, J. (2006). Measuring the full Impact of Minimum and Living Wage Laws. Dollars and Sense. In Bonello, F.J. & Lobo, I. Taking Sides: Clashing Views on Economic Issues (15th ed.). New York, N.Y.: McGraw-Hill.

World Bank. (2008). Minimum Wages in Developing Countries: Helping or Hurting Workers?. World Bank Employment Policy Primer, 10. Retrieved from http://web.worldbank.org/

Anderson, A. (n.d.). How Raising Minimum Wages Hurts U.S. Employers. Retrieved from http://smallbusiness.chron.com/raising-minimum-wages-hurts-us-employers-11744.html

Simonds, L. (2013, April 8). Automate Your Way to Efficient Growth. Retrieved from http://business.time.com/2013/04/08/automate-your-way-to-efficient-growth/ http://www.mom.gov.sg/statistics-publications/national-labour-market-information/publications/Pages/manpower-statistics-brief.aspx Sicat, Gerardo (2010, July). Spotlighting on High Economic Growth, employment of the Poor and Poverty Reduction: A Three Pronged Strategy.

References: Chan Robles Virtual Law Library (2010). The Labor Code of the Philippines. Retrieved June 21, 2013 from http://www.chanrobles.com/legal4labor3.htm Debate.org Greene, B. (2013, Feb 24). What if there were no minimum wage?. Retrieved June 20, 2013 from http://edition.cnn.com/2013/02/24/opinion/greene-minimum-wage Harder, K Jones, P. (1997). The Impact of Minimum Wage Legislation in Developing Countries where Coverage is Incomplete. Retrieved June 21, 2013 from http://economics.ouls.ox.ac.uk/14547/1/9802text.pdf Morgan, L Wicks-Lim, J. (2006). Measuring the full Impact of Minimum and Living Wage Laws. Dollars and Sense. In Bonello, F.J. & Lobo, I. Taking Sides: Clashing Views on Economic Issues (15th ed.). New York, N.Y.: McGraw-Hill. World Bank. (2008). Minimum Wages in Developing Countries: Helping or Hurting Workers?. World Bank Employment Policy Primer, 10. Retrieved from http://web.worldbank.org/ Anderson, A Sicat, Gerardo (2010, July). Spotlighting on High Economic Growth, employment of the Poor and Poverty Reduction: A Three Pronged Strategy.