Economic Report — Case Study #4 – Minimum Wage Essay Example

ECONOMICS FOR BUSINESS — ‘MINIMUN WAGE’ 5

Economics For Business — Minimum Wage

Executive Summary

The study in question seeks to explain the meaning of what a minimum wage is, how a minimum wage is set, and what influence a minimum wage has on the living residents of a nation and in particular the working residents of Australia. It also seeks to help us understand the factors that led to an increase in the minimum wage raise in Australia. Minimum wages in Australia are among the best among many nations all over the world and may has completely changed how many countries are distributing their wages now. This study seeks to explain why Australia raised its minimum wages, the impact of the raise on the economy of this nation and how the country plans to maintain or even raise thenwage rate in the near future and among coming generations in the country.

Table of Contents.

1.0 :Executive Summary……………………………………………………………………………………………….2

1.1: Introduction…………………………………………………………………………………………………………..4

2.1: Setting of a minimum wages level…………………………………………………………………………..4

2.2: Minimum wages level effects in Australia………………………………………………………………..6

2.3:Setting of Minimum wage level in Australia………………………………………………………………7

Conclusion………………………………………………………………………………………………………………..10

1.1 Introduction

A minimum wage is the lowest hourly , daily, weekly, or monthly renumeration or payment that employers should or may legally pay to their workers or their employees. In other words, it is the lowest pay that a worker or generarally workers are willing to accept just to sell their labour and services (Lambourn, 2011). A minimum wage is of benefit to the employees as it helps raise their stardards of living and reduce the poverty levels among the employees or generally workers. A minimum wage can also be viewed negatively to have numerous of disadvantages that may include things it being high enough to be effective, can only be of benefit to the better skilled workers thus harming the low income earners with low productivity levels, causes and may even increase unemployment levels mainly to the inexperienced and handicap workers among many other pros and cons. Minimum wages in Australia have a lot of impact on the workers of the state and this is discussed to show the impact of the wages acrosss this nation (Lambourn, 2011).

2.1 The setting of minimum wage level

So many economists have come up with how to set a minimum wage level. However, the classical theory argues its case and says that a minimum wage level should not be set obove the equilibrium, and that is, where the labour demand curve and the labour suppl curve intersect as it creats unemployment. This is illustrated below:
Economic Report - Case Study #4 – Minimum Wage

Source: Author (2011)

With wages on the vertcal axis and the number of hours or quantity labour supplied on the horizontal axis economists have drawn the graph that argues that workers are willing to work for more hours if paid a higher wage. Since slightly higher pay increases the quantity supplied , the supply curve slopes upwards and is shown as a line moving up from left to right. It is also assumed that as the wage rises, employers demand less hours from the employees. This is because as the wage rate rises, it becomes expensive for firms to employ more workers.as a result, firms hire lesser workers and this makes the demand curve for labour slope downward from left to right (Sowell et al, 2011). Where the demand curve meets the supply curve is an equilibrium, and if any minimum wage level is set obove this equilibrium it means that more labour will be willing to be provided than it is demanded by the employers thus creating a surplus, and thus unemployment. This illustrates the effect of the minimum wage level on the forces of the market (Schneiders, 2010).

2.2 Minimum wages level effects in Australia

The minimum wage also represents the lowest possible wage that an employer can legally pay to his or her employees. Minimun wage is a price floor that was originally created with the aim to distribute the income evenly among all employees by increasing the minimum wage of the lowest paid jobs. In Australia, the companies that are mostly by the minimum wage laws are those that offer the lowest paid and the most unskilled jobs which may include accomodation or companies, retail companies, and food and beverage companies for example, McDonald’s (MCD) Dairy Queen. Certain companies may flourish and others and others may suffer from either the increase or decrease in the minimum wage. Big companies employees will benefit from a minimum wage increase due to higher revenues, customer loyalty and good establishment in the market. Small companies like pubs and ca’fes will suffer from an increase of wage increase due to low revenue collection and lack of exposure. Start up companies who are trying to enter the market and compete with the existing giants are forced to increase their lowest wages and this will in turn increase their costs and make it harder to create a profit margin which helps a company grow. Therefore, the relative cost increase due to minimum wage rise is more felt in the small company than in the already existing big company. Some companies will not even be affected by a wage increase. This will include those companies that only employ the high skilled employees and do not employ anyone around the minimum wage level. Companies like Goldsman Sachs Group and other investment banks in Australia only employ high skilled labour thus compensate the employees very much higher than the minimum wage set. Companies in the technology industry , for example Google will also not be affected by minimu wage increase as they already pay much higher obove the minimum wage level (Lambourn ,2011). Setting of a minimum wage drives up the employees wages. This in turn offsets the forces of demand and supply. A company will be unable to afford as many employees due to the company’s decreased demand for employees due to higher wages,and lead to increased supply as many more people will be willing to work for companies at the wages presently. This causes involuntary unempolyment as many are willing to work but are not able to. Increase of wage will also act as a motivater of existing employees thus they will work harder to maintain their jobs (Lambourn, 2011).

2.3 Setting of Minimum wage level in Australia

Austaria has a $15 an hour of a minimum wage and is even ranked as being more economically free than the U.S. It was ranked as the third best economically free country in the world in 2010. Even as economist claim that the higher the minimum wages than the price floors results to unemployment, Australia has maintained its unemployment level at a rate of 4.2% as at June 2010 (FauxCapitalist, 2010). The Australian Fair Pay Commision is a body created in 2006 under the industrial relation law and is obliged to set the minimum pay for workers in Australia. This body was later abolished in december 2009 and replaced with the Minimum Wage panel of Fair Work Australia (Australian Fair Pay Commission, 2011). In a panel decision on 3rd June 2011, the new body increased the wages to $15.51 per hour, an increase in the casual loading for all agreement free employees to 22% and an increase of 3.4% to all modern award minimum weekly wages. This incriments were to flow all through even to the junior employees, those with diasbility and those also paid at piece rates (Rozenbergs & Bell, 2011). In Australia the minimum wage rate is $570 per week. No worker in Australia can get paid less than this mandatory minimum rate as it is a government mandated minimum rate and any employer who pays less than these is subject to punshment by the Australian government (International Minimum Wage Rates 2011.)

Australian Broadcasting Corporation in its article stated that the minimum wage was increased by $26 a week but the union movement was pushing for a $27 increase basing its argument on the profits of Australia’s mining magnates to ask for a rise for the low paid workers. Though employers had dissmised it saying it would push the small firms out of the market it was stil effected. Fair Work Australia argued that the prices and real earnings had grown and gone up but the minimum wages had not increased since March 2008. They insisted that there was need to increase the minimum wage so as to assist the low paid employees meet their needs and also improve their living stardards (Australian Broadcasting Corporation ,2010). The $26 pay rise for low paid workers was the biggest in 15 years and has realy sparked employer’s alarm. It was meant to make small businesses nervy. The panel had considered factors like social inclusion, the living stardards of the people and had a lot of attention on fairness (Schneiders, 2010). The unions in Australia elcomed the decision to increase the minimum wages and said that it will deliver justice of wages to minimum wage workers. Fair Work Australia panel’s president said that the economy had performed much better than expected and thus warranting an increase in the minimum wages (Schneiders & Schubert, 2010). Fair Work Australia got mixed reactions after the pay rise with business groups getting furious saying that the increase is risky irresponsible, unjustified and with a lot of costs. Others said that the minimum wage rise will give the low earners a share of the benefits of the Australian recovered economy. Australian Chamber Of Commerce contributed and said that the pay rise will be dangerous and a setback to the recovering economy in the small business sector. They argued that it would also affect new entrants into the market and said that it went beyond set limits and measures (Australian Broadcasting Corporation ,2010)

Conclusion.

In conclusion, minimum wages in Australia have helped the nation to grow as it has even improved the stardard of living of the residents. The setting of the minimum pay has also acted as a motivation to the non-skilled and semi-skilled nationals of Australia put more effort in wanting to learn more and study more in their fields so as to earn a little bit nmore obove the minimum wages.it has acted as a motivater other than a setback. Countries all over the world are being advised on setting their minimum wage levels at levels that will not affect their economies,their industries or even their levels of unemployment so as to make their economies grow.

References.

Sowell et al, 2011, Minimum Wage by retrived on 7/9/11. http://en.wikipedia.org/wiki/Minimum_wage

Lambourn D, 2011, Minimum Wage Concept,
Minimum Wage retrieved on 7/9/11. http://www.wikinvest.com/concept/Minimum_Wage

FauxCapitalism, 30th June 2010, Exposing Faux Capitalism, retrieved on 7/9/11.

http://fauxcapitalist.com/2010/06/30/australia-has-15-an-hour-minimum-wage-and-is-ranked-more-economically-free-than-the-u-s/

Rozenbergs K and Bell M,28th July 2011, Labour and Employment in Australia,
Minimum Wage Increase-are you ready?,retrived on 7/9/11. ,http://www.mondaq.com/australia/x/140566/Employee+Rights/Minimum+wage+increase+are+you+ready

Australian Broadcasting Corporation, June 3 2010, $26 boost to minimum wage,page 1 and 2, retrived on 7/9/11.

http://www.abc.net.au/news/stories/2010/06/03/2917094.htm

Schneiders B, 4th June 2010 ,Fairness Back in Focus,page 1 retrived on 7/9/11.

http://www.theage.com.au/opinion/fairness-back-in-focus-20100603-x6yv.html

Schneiders B & Schubert,4th June 2010, Freeze Over ,Minimum Wage up by $26 a Week,
retrived on 7/9/11,

6ys.html
http://www.theage.com.au/national/freeze-over-minimum-wage-up-by-26-a-week-20100603-x

Australian Broadcasting Corporation, 3rd June 2010, Opinion
Split Over MinimumWage rise, page 1, retrieved on 7/9/11.

http://www.abc.net.au/news/stories/2010/06/03/2917568.htm