Minimum Wage Policy Alternatives: An Economic Perspective

This essay delves into the economic implications of minimum wage policies and explores viable alternatives. The author begins by defining minimum wage and its intended benefits, such as preventing labor exploitation and aiding low-income families. However, the essay acknowledges the contentions surrounding minimum wage, including potential unemployment, reduced industry growth, and inflation. To address these drawbacks, the essay proposes and analyzes alternatives, with a focus on the Earned Income Tax Credit (EITC). The EITC is presented as a more efficient approach, offering benefits like reduced poverty, increased labor force participation, and reduced tax burdens for low-income families. The essay supports its argument by highlighting the advantages of the EITC over minimum wage, emphasizing its potential to stimulate economic achievements and provide more certainties for laborers. It concludes that the failures of the minimum wage policy can be potentially replaced by the implementation of an improved EITC system.

Running head: ALTERNATIVES TO MINIMUM WAGE
ALTERNATIVES TO MINIMUM WAGE
Name of Student
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Author Note

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ALTERNATIVES TO MINIMUM WAGE
One of the basic requirements for any sort of economic production is labor, and the
minimum wage policy ensures the non-exploitation of this particular facet. By definition, the
minimum wage policy is the legally mandated lowest amount of remuneration that should be
paid to a laborer on an hourly basis for the worker to accept the work (Belman and Wolfson).
Built for the benefit of the economy and the laborers, the policy has certain contentions and
to avoid these, there are certain alternatives as well. The essay argues for the implementation
of the alternatives of the minimum wage policy that maintains an efficient development of the
economies as well as prevents the laborers from being exploited.
The minimum wages were launched with the motive of terminating the exploitation of
the laborers, accompanied with the long-term intention of aiding the lower income families,
and was first initiated in Australia and New Zealand in the 1980s. The policy is in effect in
several jurisdictions globally, however, there exists polarities in opinions regarding its
implementation (Neumark and Wascher). The benefits of the execution of this policy
includes heightened standard of living for the lower income groups, diminishing their
financial stress, has an optimistic impact on small industries, stimulation in consumption
among poorer classes, coherence in work ethics, morale-boost to workers for joining any
workforce and so on.
The detractors, on the other hand, claim that the increase in minimum wages are not
as productive as imagined. (Meer and West) The minimum wage structure often fails to
decrease unemployment rates. If the wage rate is above the general equilibrium, it will not
only generate frictional unemployment, but also high wait unemployment due to the demand
for the labor being lesser than the supply of labor. A surge in the minimum wage rate may
also culminate in a decreased yield and growth of industries as firms might prefer investing a

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greater deal in capitals than labor. Due to increased minimum wage rate, there would be a
boost in the labor force, consecutively decreasing capital per labor thereby decreasing output
per capita. (MaCurdy) Minimum wage increments also are not always efficient mechanisms
for reduction of poverty, as it is not directly related to diminishing poverty. Employees
gaining from the minimum wage structure might not necessarily belong to the below poverty
level and might cost some low-income workers their jobs due to higher skilled levels. The
policy also might lead to inflation as the producers can increase the price for their products to
compensate the increased cost for laborers.
There are certain controversies surrounding the implementation of the policy in
various economies (Mărginean and Chenic). For instance, in cross-cultural employment,
there are laborers from diverse economic backgrounds and it is often viewed that the natives
of the country where the organization is based are paid the minimum wages accordingly
unlike the laborers from other countries and cultures. Similar disparities in the payment of the
laborers can be found among the multi-national corporations, which often expand in third
world countries for employing cheaper labor. There are discrepancies in the minimum wage
rate among organizations belonging to backward economies that fail to provide the laborers
with minimum wages due to poorer company yields. Therefore, resulting in the overall
failure of the policy objectives in certain cases.
The policy thus is not as efficient as claimed, has more downsides to it than benefits,
and thereby is controversial in nature. (Ganong and Jäger) In order to avoid the detrimental
aspects of the minimum wage policy, there are certain alternatives that can be implemented
for securing the similar objectives, such as increment in the Earned Income Tax Credit
(EITC), diminishing the premiums of health insurances, implementation of training programs
for the minimum wage workers, reduction of taxes for small-scale business organizations and

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so on. Of the aforementioned alternatives, the upgradation of the Earned Income Tax Credits
is supposedly a more efficient approach than the minimum wage policy.
To support this argument, the concept of tax credits must be understood vividly.
(Nichols and Rothstein) A simplified version of the EITC is that it functions as a negative
income tax for benefiting the lower income groups. The Earned Tax Income Credits acts as a
subsidy on top of every dollar earned by the qualifying groups of people. The introduction of
the EITC is estimated to recover people in a more productive manner from poverty and is
faster than the minimum wage policy as it involves lower levels of discrepancies. The
increase in Earned Income Tax Credits displays a wider propensity to work among
employees and tends to generate more amount of potential job aspirants. It improves the
participation of the labor force in case of the single mothers, specifically for the women who
have lower skill levels, and for whom this policy is partially targeted. This policy also
complements the employers as it gives them the opportunity to hire more people at a reduced
cost. It must be mentioned that the lower income groups in an economy often are liable to pay
taxes that are more in amount as compared to their income rates as the tax rates are fixed in
accordance with mean tested social welfare programs. The introduction of the Earned Income
Tax Credits often helps to ease the burden of taxes on the families that earn low remuneration
(Marr et al.).
The secondary aspects of the implementation of this policy includes the indirect
benefits gained by the lower income families. With the induction of the Earned Income Tax
Credits, the people with minimal incomes have opportunities to save for their other needs
(Hoynes and Patel). It is often said that the education levels of the lower income families tend
to be more efficient due to the assistance provided by the Earned Income Tax Credits and it
increases the scopes of the children belonging to this sector to have a chance at a more

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preferable education. It can also be inferred that the Earned Income Tax Credits improves the
standards of lifestyle followed by the low-income families.
The Earned Income Tax Credits can also act as a complimentary to the minimum
wage policy only if the positive effects of aiding the low-income people to gain employment
is ignored. The Earned Income Tax Credits also has scopes for improvements to benefit the
people of the economy further. The Earned Income Tax Credits for adults without children
could be expanded, which would assist in removing some of their concerns. And herein it can
be incorporated that the improvement in the Earned Income Tax Credits is a superior
alternative to the minimum wage rate policy and hence is not simple a complimentary aspect
of the latter.
The aforementioned credit system appears to be more lucrative to the laborers as they
are gaining more from it than from the increased minimum remuneration rates accompanied
with lesser disparities and more certainties. The Earned Income Tax Credits stimulates the
overall achievements of the economies in a more enhanced manner than the minimum wage
policy. It can also be accounted for in a clearer form as the records of income tax rates are
maintained with better efficiency in every other economy. (Hoynes) There could be a
dramatic and significant improvement in the lives of the people belonging to the lower
income category if the economic expenditure of the minimum wage policy were targeted to
the financing of the Earned Income Tax Credits. The negative effects of microeconomic
influences on the employers are reduced with the Earned Income Tax Credits as it is paid by
the federal income tax department and hence can be accounted for in a better manner.
Therefore, to conclude it can be said that the failures of the minimum wage policy in several
economies can be interchanged with the implementation of the improved system of the
Earned Income Tax Credits.

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Works Cited
Belman, Dale, and Paul J. Wolfson. What does the minimum wage do?. WE Upjohn Institute,
2014.
Ganong, Peter, and Simon Jäger. "A permutation test and estimation alternatives for the
regression kink design." (2014).
Hoynes, Hilary W., and Ankur J. Patel. Effective policy for reducing inequality? The earned
income tax credit and the distribution of income. No. w21340. National Bureau of
Economic Research, 2015.
Hoynes, Hilary. "The Earned Income Tax Credit: a key policy to support families facing
wage stagnation." (2017).
MaCurdy, Thomas. "How effective is the minimum wage at supporting the poor?." Journal
of Political Economy 123.2 (2015): 497-545.
Mărginean, Silvia, and Alina Ştefania Chenic. "Effects of raising minimum wage: Theory,
evidence and future challenges." Procedia Economics and Finance 6 (2013): 96-102.
Marr, Chuck, et al. "EITC and Child Tax Credit promote work, reduce poverty, and support
children’s development, research finds." Washington, DC: Center on Budget and
Policy Priorities (2015).
Meer, Jonathan, and Jeremy West. "Effects of the minimum wage on employment dynamics."
Journal of Human Resources 51.2 (2016): 500-522.
Neumark, David, and William Wascher. "The effects of minimum wages on employment."
FRBSF Economic Letter 37 (2015): 2015.

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Nichols, Austin, and Jesse Rothstein. "The earned income tax credit." Economics of Means-
Tested Transfer Programs in the United States, Volume 1. University of Chicago
Press, 2015. 137-218.