Literature Review: Policy Findings Report

Literature Review: Policy Findings Report
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Introduction
There has been intense debated on the impact of raising the minimum wage on unemployment. A review of literature highlights on two opposing arguments on this phenomenon, where raising the minimum wage level is reported to increase unemployment. On the other hand, supporters of raising the minimum wage suppose that it would raise the income levels of the working poor, and has the potential to reduce poverty levels. However, it is also likely that a minimum wage rise would only have modest effects on unemployment resulting to a slight increase or decrease in unemployment or no change at all. This is a literature review discussion highlighting on the three possible scenarios.
Effects of Wage Rise on Unemployment and Poverty
Wage Rise and Higher Unemployment Argument
Even though, conventional wisdom supposes that raising the minimum wage reduces unemployment in the long-term it may also increase unemployment. Ina study highlighting on the effect of lagged time effect, the authors found out that the lagged wage variable influences the unemployment income as it has a negative effect . The researchers relied on an empirical model that covered different wage levels across diverse states, with main focus on long term unemployment. A modest negative impact of wage increase on employment is also supported by other research, especially those which rely on sensitivity analysis. As such, policy makers need to take into account the magnitude of wage increases, since a minimum age increase may leave lowly paid workers worse off.
Wage Rise as a Social Policy
Even though, the policy of wage increase has garnered interest, there is still no consensus on its impact on employment. In a study research to assess the impact of a minimum wage of $ 9.50 on the poor, the authors point out that the wage level may be inadequate to improve their social status. As such using the fixed effects model assuming poverty is the dependent variable with the federal minimum wage rate and unemployment as independent variables help to illustrate the effect of minimum wage increase on poverty levels. In essence, changes resulting to widespread adoption of higher wage increase are adopted in specific industries there is an increase in labor cost, but the wage rise is also a disincentive for employers to hire more people. Nonetheless, a rise in prices of products or services charged for industries would then result to a slight increase in employment.
The Effect of Job Transitioning and Family Income Distribution
An increase in minimum wages has a more profound impact on poor people and their families, as it reduces the share of income spent on consumption. In particular, those living near the poverty line are in a better position if the minimum wage is raised. Estimates on minimum wage effects may fail to account for family transitions in and out of poverty, but previous studies suggest that they are potentially useful to understand the relationship between minimum wage increase and poverty levels. The authors then rely on multinomial logit models for estimation to account for differences across distribution of family income to needs.
Effects Wage Rise Taking Into Account Income Sharing
The income sharing aspect affects the impact of a minimum wage increase elastic demand for labor as well as the depth of poverty may either increase or decrease poverty levels depending on the prevailing labor market conditions as shown by the use of the labor market labor. Taking into account that people in poor households have lower participation rates in the labor market, the study shows that that a rise in minimum wage may also benefit middle income households. As such, in the Australian context where minimum wages are higher compared to other countries in the OECD, a rise in minimum wages was found to have better net effect on the middle class .
Modest Effects For Small Wage Rise Levels
For low wage earners, an increase in wages may also be accompanied with fewer working hours, meaning that the perceived benefits of an increase in wages would not necessarily be beneficial. In any case, there are research findings indicating that a minimum wage increase is typically small and almost has negligible effect on employment, longitudinal surveys may help to illustrate that indeed the magnitude in wage increase and the employment duration affect influence unemployment. In particular, having legal minimum wages reduces labor turnover, but the average wage levels should be considered when assessing the impact of wage increases.
Demographic Differences and Minimum Wage Rise
A better understanding on the effect of minimum wage increase on poverty level is by accounting for differences between prime age workers and junior adults or teenagers. Essentially, prime adults tend to be less poor the impact of wage increase on young adults and teenagers is more profound as poverty is likely to decrease. Hence, demographics and level of poverty in households should be considered by policy makers when implementing minimum wage increases. For any section of workers in any group who would otherwise earn less if there is no minimum wage level, there is a more profound impact of wage increase on such a group. Teenagers and young adults tend to be disproportionally represented among such workers, while the effect on adults following a wage increase is typically smaller.
Impact of Wage Rise in Low Paying Industries
In a study focusing on the fast food industry, the authors reported that depending on the magnitude of wage increase, the larger the wage increase the more likely that workers will choose the higher paying job in a different ...