Minimum Wage Rate: Benefits and Drawbacks

The assignment analyzes the concept of minimum wage rates, examining their benefits in providing regulated wages and promoting social welfare. It also discusses the drawbacks, such as potential distortions in the labor market and increased unemployment. The essay highlights the importance of government intervention and policy decisions in managing minimum wage rates effectively to balance economic growth and social equity.

WHETHER GOVERNMENTS SHOULD INTERVENE IN
A MARKET ECONOMY WITH REGARD TO ABOLISH
THE CURRENT MINIMUM WAGE

WHETHER GOVERNMENTS SHOULD INTERVENE IN A MARKET
ECONOMY WITH REGARD TO ABOLISH THE CURRENT
MINIMUM WAGE
Government intervention in market plays an important role in ruling out issues that may
be present in the market. Substantial role is played by it so as to make adequate policies
regarding various market factors. The essay is responsible to make comprehensive rules
regarding government interventions in taking various decisions. Moreover, positive and negative
arguments will be presented regarding government intervention in a market economy with regard
to abolition of current minimum wages.
Microeconomics is related to the study of behaviour of individuals in order to make
decisions regarding scarce resources and interactions among these individuals and firms. There
are various microeconomic environmental factors that affects the functioning of a business that is
required o be considered by the management while making any decision. Some these factors
include, customers, employees, distribution channel and suppliers, competitors, investors, media
and other general public. It is ensured that any decision regarding prices made by the business
consider all the micro economic factors for generating utmost benefits out of it.
Government plays an important role in fixing the prices for a particular product. There
are various macro environmental factors that are considered by the government while making
this type of decision for a particular product belonging to certain sector. It includes current
demand and supply prospects, demand of product in the global market, currency fluctuation,
export and import aspects, etc. Government plays a vital role in combating with various market
inequalities that are present in the form of subsidies, regulations and taxation. It also helps in
promoting economic fairness where equal opportunities are grabbed by each and every producer
that is available in the market. Inefficiencies are addressed in such a manner where resources are
effectively allocated at various places as per the requirements (Egenhofer, Marcu and Georgiev,
2012). It helps in making the marketing optimally efficient enough to conduct its tasks with high
amount of profitability. There are four main objectives of the government to intervene in the
market condition and bring them back to normal one.
First is, maximizing social welfare which deals with reducing the power that lies in hands
of people who are indulged in monopolistic competition. It is due to their non-adaptive rules of
raised entry cost and limited infrastructure. Without regulations from the side of government,
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negative externalities rules can affect positive consequences. It can lead to diminished optimum
utilization of resources, minimized trade, stifled innovation and impacting its corresponding
benefits (Cockfield and Botterill, 2012). Controlling these functions give opportunities to people
to get products and services at the best price. Hence, in this manner, social well being of society
is promoted.
Second is macro-economic factors which focus upon minimizing the damage to products
and services due to prevalence of naturally occurring economic events. These can be in the form
of recession, inflation, etc. (Grosjean and et.al., 2016). In such cases, government tends to
manipulate money supply in order to minimize any harsh impact on the constituents.
Third is, socio economic factors, where government tends to intervene in order to
promote general economic fairness in the macro environment. It is mainly performed with the
help of various taxation and welfare programs and relocate financial resources to the places
where it is actually required. Other examples of market intervention due to socio economic
reasons can be protection of employment laws belonging to certain segment of the population
and ensure healthy well-being of consumers (O’Keeffe, 2017).
Apart from the above four mentioned requirements, there are other necessities as well.
Hence, the other goals of government interventions can be related to achieving national utility
and advancements. Growing impressive yet large military force in order to attain security is the
other reason. Price ceiling and price flooring are the other two methods of government
interventions that are generally adopted by them. It helps in controlling prices in such a manner
where it must remain in between the price interval that has been decided for the particular
product. It helps in ensuring presence of good and affordable products for people belonging to
different sections of the society.
The main issue faced by organizations due to government intervention is that the team
behind intervention is liable to make wrong decisions due to their influence from political
pressure groups. They can spend a lot on inefficient project that can lead to ineffective outcomes.
Another issue related to it is destruction of personal freedom, where on behalf of individual,
government tend to take decisions that can affect the overall individual decision related to
spending. Government may not be knowing various concerns related to internal aspects of
market. Hence, market personnel can be the best at deciding how and when to produce (Wood
and et.al., 2014).
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Another argument that can be presented in this aspect is related to government
intervention with respect to laws that have been made to cope up with the minimum wages. The
Australian national minimum wage is the base rate of pay for the ordinary number of working
hours of the employees, who are not covered by Modern Award or an agreement.
A minimum price is related to the concept of price floor where the market is advised and
ordered not to decrease their prices below that level. Minimum wage rate can be the best
example that is related to price flooring. As per this concept, it is not allowed to the employers to
cut down prices of employees below a certain level. Wage rate per hour that has been decided by
the government is required to be followed by all companies that are present in market. The main
aim of following minimum wage rate concept is related to justify the equality among people who
are working at the same level and are able to produce similar outputs (Aydos, 2014). It ensures
that fair rate is paid to them. The tool also helps in abolishing discrimination in labour market
where unequal treatment is given to female workers and younger employees.
Figure 1: Countries with the best minimum wages
(Source: The countries with the best minimum wages, 2015)
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However, the concept of minimum wage rate also attracts certain disadvantages. Some of
the researchers have argued that keeping minimum wage rate in labour market has direct
influence representing distortion to the method in the manner labour market works. It leads to
reduction in overall flexibility in the market. Having a specific minimum wage rate leads to
create issue where it gives a rise in the overall cost of labour. Industries face issues in employing
adequate number of people to conduct their tasks due to increase in their overall cost (Hubbard,
Garnett and Lewis, 2012). Minimum wage rate can then lead to extra unemployment leading to
the downturn of overall economic growth of country. Researchers have stated that it is method
which was adopted to reduce unemployment or raise the standards of low income category.
Moreover, another objective was to increase the income of household and thereby, leading to
better economic life of people. However, greater risk of unemployment is borne by people who
belongs to the unemployed, elderly and single parent categories. Hence, impact is borne by the
other section of society.
It can be stated that abolition of minimum wages can impact the overall economy as then
people will be employed at lowest possible prices affecting their survival. Hence, abolition of the
same cannot said to be an effective option. Moreover, extensive role is required to be present
from side of government so that better decisions can be made regarding the same (Gans, King
and Mankiw, 2011).
From the above essay, it can be concluded that minimum wage rate helps in having
regulated wage rate available to workers and employees. It has direct relation to social welfare
where employees are able to get equal and fair pay for the work that has been performed by them
at their end. Another important aspect that has been covered in the essay is related to
disadvantage of having price floors of wage rate, where wrong decisions are sometimes made by
the government due to presence of influence from pressure groups. It has a negative impact on
the overall development of economy.
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REFERENCES
Books and Journals
Aydos, E., 2014. What went wrong? Lessons from a short-lived carbon price in Australia.
Cockfield, G. and Botterill, L. C., 2012. The evolution of rural policy: The Antipodean
experience. Policy and Society. 31(4). pp.343-353.
Egenhofer, C., Marcu, A. and Georgiev, A., 2012. Reviewing the EU ETS Review?.
Gans, J., King, S. and Mankiw, N. G., 2011. Principles of microeconomics. Cengage Learning.
Grosjean, G. and et.al., 2016. After monetary policy, climate policy: is delegation the key to EU
ETS reform?. Climate Policy. 16(1). pp.1-25.
Hubbard, G., Garnett, A. and Lewis, P., 2012. Essentials of economics. Pearson Higher
Education AU.
O’Keeffe, P., 2017. Maximising efficiency, marginalising equity: a genealogy of Australian
wheat export market deregulation and ‘the good farmer’. Australian Geographer, pp.1-
19.
Wood, T. and et.al., 2014. Post Paris: Australia's Climate Policy Options. Grattan Institute.
Online
The countries with the best minimum wages. 2015. [Online]. Available through
<https://www.statista.com/chart/3501/the-countries-with-the-best-minimum-wages/>.
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