Minimum wage laws stipulate the lowest hourly wage that an employer can legally pay an employee. Currently, about ninety percent of countries worldwide employ a minimum wage rate. In the United States, as elsewhere, the laws are controversial.
Supporters of minimum wage laws claim the rules ensure workers can afford the basic necessities of life and help to reduce exploitation of lower class and younger workers. Other benefits of minimum wage include stimulated consumption by the lower classes, as they generally spend their entire paycheck. Supporters also assert that wage laws decrease the cost of government social welfare programs by increasing paychecks for the lowest earners in society. As a concept to be enforced, minimum wage is simple, as workers only need to report violations of underpayment.
Critics of the laws state that they hurt small businesses more than large businesses and reduce profit margins for owners. In turn, this leads to increased prices for goods and services being sold, causing inflation and less consumption in the economy. In a survey of American Economic Association economists, 45.6% completely agreed with the statement that “it increases unemployment among young and unskilled workers.” This negative impact on younger workers is said to be age discrimination by some.
Age discrimination against younger workers often involves the use and manipulation of minimum wage laws. Because young workers are generally less skilled, employers can often justify paying them less than their older counterparts. However, when equal ability levels are present between an older and younger worker and the younger worker continues to make less money, age discrimination might be present. Minimum wage laws codify a tiered wage system based on age rather than ability. Some employers also hire workers who are younger than the legal working age and pay them less than minimum wage, thereby reducing costs and destroying their ability to voice grievances without losing their jobs.
Potential alternatives to minimum wage laws include a negative income tax or an earned income tax credit. In a negative income tax, a flat tax rate would be paid plus a fixed government payment. This would be in contrast to a progressive tax rate like the system that is currently in place. The Earned Income Tax Income is a refundable credit that supplements income, generally of single parents or families with children. These two options benefit a broader spectrum of low wage earners and reduce the tax burden by distributing the costs more broadly in society.
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