Wages and Employment Level
Write an essay on the Effect of Major Corporations paying Low Wages?
If several workmen were to be asked: “How much wages you get?”, One would reply, “I get two shillings a day” , and so on. According to the different branches of industry in which they are employed, they would mention different sums of money that they receive from their respective employers for the completion of certain task; for example, for weaving a yard of linen, or for setting a page of type. Despite the variety of their statements, they would all agree upon one point: that wages are the amount of money which the capitalists pay for a certain period or for a certain amount of work. Wages are the price of a certain commodity, labor-power. Wages are determined by the same laws that determine the price of every other commodity.(Marx, 1849)
Wages are best associated with employee compensation based on the number of hours worked multiplied by an hourly rate of pay. The paycheck is received usually after the work period and may vary as per the period, While, salaries are best associated with employee compensation quoted on an annual basis. The paycheck covers the work period and is the same amount for each pay period. Generally, the hourly-paid employees will earn wages at the rate of time and one-half for the excess hours but the salaried employees will not likely receive additional pay for the excess hours.
Classical and neo-classical economic theory has evolved around the idea that competition very quickly adjusts wages so as to eliminate excess demand or supply in the labor market. Pigou argued that “with perfectly free competition there will always be at work a strong tendency for wage-rates to be so related to demand that everybody is employed. The implication is that such unemployment as exists at any time is due wholly to the fact that changes in demand conditions are continually taking place and that frictional resistances prevent the appropriate wage adjustments from being made instantaneously”. It suggests that there is an unambiguous and close relationship between wages and employment level and that a decline in the wages would lead to the extended increase in the employment levels.(A.C.Pigou, 1933)
The pay checks for employees also vary between the public and the private sector. According to a recent study, public sector employees are more skilled, work for shorter hours and still earn more money than their private counterpart. But one will earn more in a private sector if he has a degree and also private sector has better pay increases. Implicating on some facts, private sector were paid on an average between 7.7% and 8.7% more than the private sector. The public sector consists of a higher proportion of older employees and earning tends to increase with age and experience. Also, there has been a change in the public sector employment as many of the lower skilled jobs have been outsourced to the private sector. If we put all the workers in the hourly pay, we get to see that the bottom of the pay scale will get paid more in the public sector while the top end; the richest will get a lot more pay in the private sector.(Rogers, 2012)
Difference in Pay between Public and Private Sector
In the New York state, the general industry minimum wage act states that employers must pay all employees in New York State including most domestic workers, at least $8.75 per hour. They set an hourly rate plus overtime and allowances based on meals and lodging supplied by an employer. The Fair Labor Standards Act requires a minimum wage of $2.13 for tipped workers with the expectation that wages plus tips total no less than $7.25 per hour effective from July 24, 2009. The federal minimum wage provisions are contained in the Fair labor standards Act. Also, the employer is bound to pay the difference if the total does not add up to $7.25 per hour.
With the evolution of minimum wage rate, it comes with some disadvantages and advantages too. A minimum wage rate is the legal minimum for workers. It basically means that the worker is guaranteed a certain hourly pay. However these legal laws also carry some disadvantages. If there is competition in the labor market, a minimum wage could cause unemployment because firms would demand less labor and higher wages may encourage more workers to supply their labor. A minimum wages can cause cost push inflation. This is because firms face an increase in costs which are likely to be passed on to consumers. This is even more likely if wage differentials are maintained. A limitation of the minimum wage is that it doesn’t increase the incomes of the lowest income groups. This is because the poorest have to rely on benefits and are therefore not affected by minimum wages. . Many who benefit from the minimum wage are second income earners and therefore the household is unlikely to be below the poverty line. A household with a single income earner just above the minimum wage is likely to be relatively poorer. But, they will not benefit from the minimum wage.
As minimum wage rates have disadvantages, it also features advantages. The minimum wage increases the wages of the lowest paid. These workers will have increased income and will reduce relative poverty. If firms have to pay higher wages, they may put more focus on increasing labor productivity, which increases efficiency of the economy. With a minimum wage, there is a bigger difference between the level of benefits and the income from employment. A minimum wage could also increase the participation rate as the benefits of work become greater and more worthwhile. Firms will have an increase incentive to invest and increase labor productivity because labor is more costly.
The advantages and disadvantages of the hourly wage can be further exclaimed with the example of Wal-Mart employment system. Wal-Mart has 2.2 million employees, including 1.3 million hourly workers. It employs 1.2 million people in the U.S. alone. Gross revenue is $475 billion, generating profits of $17.20 billion. It dominates the discount retail space and has a 66.70 percent market share. The retail giant does $474.88 billion a year in sales; across their 2,200,000 employees, that nets out to $213,255 sales per employee. Given a 5.93 percent operating margin, that nets out to $12,646.02 profit margin per employee. Adding $3 per hour per full-time employee would consume almost half of that profit.(Ritholtz, 2013). But that before any potential increase in productivity, reduced turnover costs and higher revenues. Some stores had discovered that raising wages provided a competitive advantage among its peers. Thus for Wal-Mart, underinvestment in labor has been a part of its success in growth. But higher wages has been seen as increasing morale and efficiency of the worker and thus increasing sales and profits. For this, the management and owners of the retail giant are to come together and think if they want to capture these benefits.
Advantages and Disadvantages of Minimum Wage Rates
Wages are determined by the workers marginal revenue product, which means the value a worker adds to the firm who employs him. Further MRP is determined by Marginal physical product (the productivity of the worker) and Marginal revenue (MR) of last good sold, effectively the cost and the demand of the last good sold and produced by the laborer. Thus, for example, if the pay is for strawberry pickers, the worker who picks more strawberries in lesser time will be paid much more than a slow and lazy worker. For such works, firm link pay to piece and productivity. Another factor that determines pay is the demand for the commodity. For example, the best soccer players get paid much more than the best hockey players because there is much more demand for watching soccer games, there is more money in the sport so sports clubs are willing and able to reward much higher salaries to get the services of the best footballers.
As well as demand, wages will be determined by supply. Workers who have special skills will generally be rewarded with higher pay. For example, if someone spends 5 years to be trained as a chartered accountant, they deserve higher pay to reimburse them for the investment of time in achieving such success.(Kearney, 2014)
Most of the population provides labor to earn a living. And the best way to do so is by supplying their labor in return. Wages are the pay the workers receive for their labor in the form of salaries, bonus, royalties, pensions, health insurance and fringe benefits. The wage rate is the price per unit of labor. Workers are most commonly paid for their labor by the hours they invest. Just like in the United States, most employees receive $7.25 for their work. So if a worker works 50 hour per week, he is entitled to be rewarded with $7.25X50 hours= $362.5 per week. Nominal wage is the amount earned in terms of dollars or other currency, while the real wages is the amount earned in terms of actual value.
There are different wages for different nations, regions, occupations, and individuals. Generally, wage rate will be higher where the demand for workforce is greater than the supply. Nominal wages fluctuate more than real wages, since the purchasing power of different currencies varies considerably. For instance, in those countries with cheap labor, such as China and India, most necessity goods and services also have lower prices than what they would generally amount to in more developed economies.
The main factor that will determine the upper limits of wage rate is the market share of the business in combining inputs to produce socially desirable outputs. Obviously, more productive the worker, more the pay. Productivity largely lays on the availability of real capital, in the form of machinery and up gradation, and on the availability of raw materials, which are required as inputs in the production of goods and services. The quantity of education or training also largely determines how much a laborer can earn, not only by making the laborer more productive but by also making the worker more attractive to employers, who employ them.
Factors that Determine Pay
The characteristics of the entrepreneurs who start a business will also determine the efficiency of the business since they provide a structure to initiate the organization of how the business will be conducted for production. Afterwards, the quality of the management officers will also affect the survival of the business, and therefore, the workforce, by how effectively they control costs and produce the desired output.
Another factor that will hugely affect productivity of the business is the political and social environment of the country or region in which the business is working. Many governments, especially in corrupt countries, interfere with the growth of businesses or try to extract money, in the form of bribes, from businesses for the enrichment of particular government servants rather than using it as tax revenue for the welfare of society. The scale of the market also matters. Bigger markets can help promote efficiency and that Economies of scale can be reached. (Spaulding, 2014)
The desirability of a minimum wage rate depends on various factors:
- State of the economy. During strong development and decreasing unemployment rate, it is easier for corporations to pay higher pays.
- Is demand for worker wage inelastic or some firms are very sensitive to higher wage rate. Some tertiary sector jobs like hairdressers / shoppers may argue a small increase in their wage bill could result to unemployment.
- Can there be regional differences in wages (e.g. a London specific minimum wage rate).
- Is there scope for corporations to increase labor productivity and therefore be able to afford the wage rate increase?
An increase in the minimum wage level results in a “ripple effect” on other workers earning wages in the same levels. This ripple effect occurs when a raise in the minimum wage increases the wage received by workers earning slightly above the minimum wage rate.(Harris, 2014)
The issue of low wage work came into the media picture when the issue of workers of Wal-Mart went for strikes. That was seen as a no way out for the millions of employees. According to a study done by the Boston College, parents earning low wages are unable to meet their essential expenses and for that the children are let alone to pay for their necessities. They miss spending time with their children and thus fail to support them. These harsh realities of low pays have short term and long term consequences. The children of such families drop out of school end up working in bad environment and having health problems. As a result they are bound to take adult roles at an early stage in life by diverting time from education, extracurricular activities and social and personal development.
What the economy needs is fewer low wage jobs and more jobs that command a higher skill and wage. Most of those have been shipped offshore thanks to corporate profit focus, unreasonable union wage, benefit and job classification demands and government policy. The production and manufacturing jobs that made America a powerhouse since the 1800s have been sent abroad, and along with them the pathway to higher skill higher wage jobs. As our economy continues to recover, a minimum wage increase could provide a much-needed boost to the earnings of low-wage workers. A significant 35 million workers from across the country could see their wages rise if the minimum wage were increased, allowing them to earn a better livelihood and lead more economically secure lives. When discussing the minimum wage, this is the magnitude of the impact that policymakers should consider.
Unless the managers of these corporations listen to striking labors and to the research that is piling up, the negative hindrances of low wages will be amplified across generations.
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