A3. The Minimum Wage and Unemployment

  Summary of contents in textbook

“The minimum wage” is introduced mainly to guarantee the basic living standards of low-income American families. However, it comes with both good and bad, and its effectiveness of protecting people from poverty is also often questioned by people. Unemployment is another shared concern. As time goes on inexorably, many have to think of new ways to equip themselves with the skills required by the new era, otherwise they are highly likely to lose their jobs.

 

Basic Information:

The minimum wage:

  • What is the minimum wage?

The minimum wage is the lowest remuneration set by the government that employers must pay their workers. It aims to guarantee the basic living standard of teenagers and adults in low-income families, and it does not apply to all Americans.

  • What effects does it have?

Raising minimum wage in the society comes with both good and bad effects. As for the positive sides, people believe that it improves the living standard of the poor and helps reduce poverty and inequality as it encourages the redistribution of wealth from high-income people to low-income groups. Besides, it also boosts morale as people are inspired to work harder and live a happy life.

However, there are also people expressing their worry towards it because increasing minimum wage will directly leads to the employers cutting off employees to reduce the operation cost, and unskilled and inexperienced workers will be the first to bear the brunt. This will further contribute to unemployment and poverty. Moreover, it may also do harm to the social economy because companies need to raise up the product or service prices so as to accommodate the extra expense of paying a high minimum wage. If that happens, inflation will be on the way.

  • How well does it work?

Unfortunately, the help offered by the minimum wage is relatively limited when taking inflation into account. Actually, with the price going up, the living standard for some low-wage worker is on the decline, compared to that in 1950s, as people living under the property line have weaker purchasing power in spite of an increase of minimum wage.

 

Unemployment:

  • What is unemployment rate?

Unemployment rate is measured as the percentage of people in the labor force who are both available for work and actively looking for work but unable to find a job. People including college students, housewives and “kenlaozu” which refers to young people who still economically depend on their parents, etc, are excluded in this regard.

  • How is the situation of unemployment going now?

Statistics show that during Trump Administration, the unemployment rate has fallen down to 4.4% in April, 2017, marking the lowest level since May, 2007. (See the chart)

  • What causes unemployment?

There’re several factors intertwined with each other that contribute to unemployment. First, a gloomy economic environment. When suffering economic crisis, unemployment rate will soar. A good example will be the 2008 subprime mortgage crisis, during which unemployment rate was brought to a peak of 10% in October, 2009.

The level of education received by jobseekers is also an important factor. Generally speaking, unemployment rate falls when education level rises, and those equipped with knowledge required by the job market are less likely to be unemployed.

Besides, technology innovation also becomes a major concern in modern times. For examples, people are in danger of losing their jobs when machines and computers are invented to replace them. Nevertheless, the unemployment situation sometimes only lingers a while as new jobs may be created to catch up with the technological advancement.

Unemployment resulted from technology development can also be referred to as structural unemployment, which means a mismatch of skilled labour and job vacancies. For example, the invention of computer last century made those whose jobs related to typewriters out of work overnight. While now the US economy features a knowledge economy, which put more emphasis on education and skills, people need to purchase high-level of education if they want to seek a job.

Last but not least, globalization as one of the causes of unemployment is gradually recognized by people, especially when Donald Trump came into office, bringing the drawbacks of globalization onto the stage than ever before. To maximize their profits, companies in the US tend to outsource parts of the assembly production to other countries where the labor prices are lower than that in the US. This directly leads to the leak of job opportunities as most of the work outsourced is labor-intensive. That’s why Donald Trump sets up “Buy American, Hire American” as his slogan as a way of reducing unemployment.

 

  Pictures

 

Minimum Wage

Minimum Wage

 

Unemployment RateType of data: PercentAge: 16 years and over

Unemployment Rate Type of data: Percent Age: 16 years and over

 

Unemployment Rates by States

Unemployment Rates by States

  Supplementary readings

 

  Useful websites

https://www.minimumwage.com/

http://www.hamiltonproject.org/papers/the_ripple_effect_of_the_minimum_wage_on_american_workers/

https://en.wikipedia.org/wiki/Minimum_wage_in_the_United_States#Prices

https://en.wikipedia.org/wiki/Unemployment_in_the_United_States#Jobs_created_by_Presidential_term

http://www.tradingeconomics.com/united-states/unemployment-rate

https://www.whitehouse.gov/the-press-office/2017/04/18/presidential-executive-order-buy-american-and-hire-american

http://www.philstar.com/freeman-opinion/2017/04/23/1692971/trumps-buy-american-hire-american-executive-order