Case study Public Policy




Economicand social effects of implementing a minimum wage policy

Theminimum wage policy was incremented in 2007 to $7.25 per hour,leading to a tremendous increase in the living standards of many lowincome workers who used to earn a mere $5.15 for more than a decade. However, since then, these wages have not been increased tocorrespond with the ever incrementing inflation rate in the country.Small business owners, which mainly employ lowincomeearners, have welcomed the conception of the minimum wage increments,as they consider themselves as one of the main beneficiaries fromthis policy. For instance, an incrementation in the minimum wage fortheir employees will boost their morale to work, and this willtherefore lead to the production of quality products that are capableof gaining competitive advantage in the global market. Consideringthe fact that the increasing the minimum wage will boost the incomeearning potential of the employees, who are additionally thecustomers or potential ones, then their purchasing power will beautomatically high and thus, the companies will increment theirprofits considerably therefore expanding their investments.

Theeconomy of the country and the regime will benefit from high taxesimposed on the company profits and the potentiality of the citizensto preserve and invest in sundry productive investments. Higher wageswill additionally boost the morale of employees to work, reducing theemployee turnover rate and the engendermentof quality products, leading to customer satisfaction and royalty.This will eventually boost business activities in the country as thefirms in place will be having a ready market for their products(Small Business Owners Favor Raising Federal Minimum Wage,&quot1-3).

Tokeep the minimum wage in pace with the inflation rate of the country,it has to be adjusted annually for the employees to maintain orincrease their costs of living. Considering the economic benefits ofthis policy, the small business owners are ready to increase thisrate annually as they are aware they will eventually benefit from theprogram by either including the extra costs in the final prices ofgoods or maintaining and increasing the amount of customers as themarginal propensity to consume and save will be high. Consumerspending in the amalgamated state accounts for more than a 2/3’s ofits economy and the majority of these consumers are the average andlower income earners. This betokens that incrementing the minimumwage will boost the economy at the same margin and thus avail theeconomy. Considering the fact that the small business owners haverealized that raising the minimum wage will be a cost that willeventually boost their business activities, they have remained to beless partisan as compared to the Congress on this issue. In the sideof political arena, the Republican small scale business owners aredivided on this issue while the Democrats and the majority ofindependents favour the move. These groups cite the economicadvantages to the country as their main reason as to why they supportthe policy of incrementing the minimum wage and then adjusting it tocorrespond with the incrementing cost of living each year (pg. 4).

Evenif there are sundry economic advantages of this policy, it willeventually lead to a high rate of inflation in the country in thelong run. This is because there will be a lot of money incirculation. However, the living standards and the social life ofmost of the employees will increment in the short run, this isbecause the majority of these groups of low income earners are womenand the minorities, who occupies approximately two thirds of thelowest wage earners, and customarily takes home more than 50% oftheir earnings for consumption (Great Britain, Great Britain, &ampGreat Britain, 2011). This denotes that even if there are otherbeneficiaries from the increment, the majority of the beneficiariesstand out to be women, and thus households, designating that there isa transmutation in the living standards in the society. Socially, thesupplemental income to sundry households will result in the abilityof the parents to buy food, clothing and good shelter for theirchildren. This will therefore increase the economic activities of thesociety as the individuals may start minuscule businesses and prosperas there is the availability and the ability to buy goods andaccommodations from the prospective and current customers. This willthen lead to a tremendous reduction in spending from the nationalSupplemental Nutrition Assistance Program to lower income earners andthe money can therefore be utilized for other economic purposes(&quotSmall Business Owners Favor Raising Federal Minimum Wage,&quot1-11).

Costbenefit analysis

Themain cost that is associated with the increment of the minimum wageis the incrementation in the costs of production of goods in theindustrial sector. However, small business owners have looked downupon this fact and instead they have advocated for its implementationgiven the fact that the benefits out of this programme will cover allthe supplemental cost associated with this increment. Lowincome families are less expected to benefit from this policyas the costs of living will be tremendously increment but this willadditionally be associated with an increase in lamentable comportmentamongst some of them. Some individuals who are not able to make goodbudgeting will eventually end up consuming all their supplementalincome and thus, the minimum wage policy may not be of any economichelp to them. For instance, if individual utilizes the excess incomeon the purchase and consumption of drugs and alcohol, criminalactivities such as drug abuse and alcoholism will increment in thesociety. However, this cannot be compared with the advantages ofincrementing the minimum wage and thus, it is quite advantageous forthe regime to implement it as a good number of individuals willbenefit, raising the living standards in the country and thus, theeconomic standards will increase. This therefore shows that failureto implement the minimum wage policy will make lower income earnersto continue suffering from poverty and all the benefits discussedabove will not be procured.


Incrementingthe minimum wage for lowincomeearners should not be perceived from the positive side only. Sundryfactors need to be factored in and be implemented by the governingbodies. For instance, there are an abundance of negative effects thatare associated with this and should be looked into, yet it isaccepted that the increment will raise the living standards ofindividuals in the society, but this limits the chances of the lessskilled and uneducated from getting employment opportunities as firmswill fixate on maximizing the quality of their products, startingfrom the quality and ability of their employees for them to get backthe value of their high wage rates. Therefore, appropriate mechanismsshould be put in place by the government to ensure that there is nodiscrimination in employment based on educational level or skills.Firms may consider human labour to be too expensive for them andthus, invest and rely heavily on machinery, providing few employmentopportunities to well paid but highly adept and inculcatedindividuals. The high rate of inflation that is caused by theincrement in the caliber of minimum wage eventually leads to highcosts of business start ups and therefore, this becomes an issue thatrequires to be looked into by the governing agencies to ascertainthat this policy does not establish any negative effect to thebusiness community and thus the economy in the long run.

Thegovernment should therefore ascertain that business start ups areprovided with the extra support to enable them start up by providingsundry incentives such as tax holidays, provision of free land forthe construction of industries and direct funding programmes. All theside effects caused by incrementing the minimum wage should thereforebe factored into the regime policy (Great Britain, Great Britain, &ampGreat Britain, 2011). Provided that lower income families will raisetheir living standards due to the increment in income, they shouldput measures in lieu of ascertaining that they make enough savings,own property and be involved in long term projects as these remainsto be the best investment that they can make, in lieu of consumingevery other coin that they earn. The regime should therefore haveelaborate mechanisms of balancing between wages and prices ofcommodities for them to efficaciously fight inflation.


Great Britain., Great Britain., &amp Great Britain. (2011). National minimum wage: Low Pay Commission report 2011. London: Stationery Office.

Small Business Owners Favor Raising Federal Minimum Wage. (n.d.). Retrieved&nbspNovember&nbsp10, 2014, from