Human Resource Economics

Running head: HUMAN RESOURCE ECONOMICS
Human Resource Economics
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1HUMAN RESOURCE ECONOMICS
A. Introduction
Wage is the remuneration that workers receive for their work effort to an
organization. The given remuneration to a worker depends on employee’s contribution to the
productivity. In a free market, the independent forces of labor demand and labor supply
determine wage (Gottheil, 2013). The wage that is determined in a free market is often
insufficient to meet basic demand for workers. Government then intervenes in the market by
setting a legal minimum wage for workers. The minimum wage is a practice of setting a legal
minimum wage, which is above the market equilibrium wage. The minimum wage intends to
protect the relatively low-paid workers in terms of ensuring a minimum income to support
their daily life. Another argument for minimum wage is that minimum wage not only
prevents use of cheap labor but is also encourages efficient use of human resource
(Blackburn, 2016). The essay sheds light on several arguments both in favor and against of
minimum wage. Reference has been drawn for existing practice of minimum wage in
Australia.
B. Definition of minimum wage and the related concepts
Minimum wage can be defined as the amount of minimum remuneration that
employer has to pay the wage earners as a payment of the work performed for a given period.
The fixed minimum wage cannot be altered either by individual contract or by collective
agreement. The definition of minimum wage implies binding nature of minimum wage
irrespective of the methods used to implement those (Rani et al., 2013). A statute, a
competent authority, a wage council, a wage board, industrial or labor tribunals or court can
set the minimum wage. The force of law through the provision of collective agreement can
also set it.

2HUMAN RESOURCE ECONOMICS
The main purpose behind setting a minimum wage is to safeguard workers from an
unduly low payment received as remuneration. Minimum wage set by the legal authority
intends ensure an equitable distribution of the fruits of progress among all. Additionally the
minimum wage also helps to ensure a minimum income to all those who are involved in the
employment relation or those are in need of such income protection. Minimum wage is often
seen as a policy measure to alleviate poverty and reduce income inequality in an economy.
Several factors determine the effectiveness of minimum wage. The three important
components of minimum wage include coverage, level and compliance. The minimum wage
should have a wide coverage. Coverage refers to the extent to which the minimum wage can
offer protection to all workers in the employment relation. This include both men and
women, migrant workers, youth irrespective of type of contracts that they are involved
(Ilo.org., 2018). The coverage all implies the extent to which minimum wage covers all the
occupation and related industries. Level refers to fixation of minimum wage to the sufficient
level so that it can cover need of all the basic need of both the workers and their families in
consideration to economic factors. Compliance refers to the fact that whether all the
employers comply with the minimum wage legislation.
C. Arguments in favor of minimum wage
In today’s world, a legislative minimum wage has turned out to be a widespread
practice across the universe. Economists and policy makers support the policy of minimum
wage on ground of several beneficial impact of minimum wage both on the society and on the
economy.
The first argument in favor if minimum wage is that setting a minimum wage
confirms a minimum income to the workers such that they can afford to meet their basic
needs. This in turn increases standard of living of workers. With the increased income,

3HUMAN RESOURCE ECONOMICS
workers can then afford a healthy diet, which improve their state of health. The feeling of a
secured minimum income reduces mental stress and improves health condition (Card &
Krueger, 2015). When workers can afford sufficient food and have a healthy mental state,
they are more productive than otherwise. Minimum wage by pulling up income of low paid
workers helps to reduce income inequality in the society. An associated effect of increase
income and improved health condition is increase in school attendance. This also helps to
reduce school dropouts and hence, contribute to an overall improvement of state of education.
Another supportive argument for minimum wage is its impact on reducing poverty. A
legislative minimum wage is often seen as an effective policy tool to alleviate poverty and
lowering inequality in the distribution of income (Giuliano, 2013). The low paid workers
enjoy sustained gain I income through implementation of minimum wage. In general, there is
an adverse relation between the minimum wage and prevalence of poverty. The latest
statistics on minimum wage in United State support the claim. It has been observed that a
near10 percent increase in minimum wage say currently from $7.25 to near $8 can reduce the
percentage of people living in poverty by approximately 2.4 percent (Washingtonpost.com,
2014). Increasing minimum wage also increases income of people belonging from lower
percentile of the income distribution.
The minimum wage has a beneficial effect on government expenditure as this
contributes to a significant cut in government expenditure conducted to support lower income
household. Implementation of a legal minimum wage boosts income of low paid workers.
This kind of income support however does not require government to spend a single
additional dollar and hence reduces tax burden of households (Reeves et al., 2017). As the
policy of minimum wage is self-enforcing in nature there is no need of additional
administration cost. By reducing excess burden of government spending, such a policy allows