People get jobs because they need money to exist in a structured society. When we get paid for
our work by an employer, this is referred to as wages. Usually, this is structured according to a
contract, and occurs on an hourly, daily, weekly, or monthly basis. Others are paid wages based on
what they specifically produce on a task-by-task basis. For example, an exercise instructor might
be paid a set amount per class they teach instead of how long the class is. But typically, employers
pay wages based on time. In fact, the majority of workers around the world get paid by the hour.
When you determine a career, or occupation that you’ll be engaging in for a significant portion of
your life, it’s important to think about how much competition you will have in the labor market,
as wages are also heavily influenced by supply and demand. The supply of labor comes from people
willing to work for wages. If labor is in short supply, wages tend to go up. If there are too
many workers for the number of jobs available, wages tend to stay the same. Demand for labor is
called derived demand, since it is derived, or driven by the demand for another good
or service. For example, the demand for barbers in a market depends on the demand for haircuts.
The more people that need a haircut, the more demand there will be for people who can cut hair.
Similar to equilibrium price, the equilibrium wage is the wage rate, or price of labor services,
set after the supply of workers meets the demand for workers in a labor market.
You also need to consider the skills required for an occupation before you
pursue it. If an occupation requires a lot of advanced education and specialized skills,
you generally can expect higher wages for it. On the other hand, a job that requires no specialized
skills, education, or training often earns wages that are difficult to survive on.
While wages for any particular job should end up at the equilibrium price of labor for that job,
it is the unfortunate case that employers still sometimes engage in wage discrimination, which
means paying a worker less than is typical, not because they have fewer skills or less experience,
but because of their characteristics, such as ethnicity, gender, religion, or age,
when these are completely unrelated to the job. In response, governments intervene to make wages
more fair to all workers. Despite laws intended to prevent wage discrimination in the United States,
women generally still get paid less wages than men due to a variety of cultural reasons. Minority
groups also tend to receive lower wages due to a history of racial discrimination.
Governments can create a minimum wage, which is the lowest hourly wage permitted by law. This is
done to generate a minimum standard of living, and to protect the health and well-being of workers.
The original reason for passing minimum wage laws was to prevent any person who worked full-time
from living in poverty. However, it’s important to make a distinction between a minimum wage
and a living wage. A living wage is a wage high enough for a worker to meet their basic needs.
More often than not, the minimum wage is much lower than a living wage.
While many economists push for the minimum wage to be the same as the living wage,
many other economists argue that the minimum wage does more harm than good in an economy.
Critics of the minimum wage give several reasons for why it’s a bad idea. First,
there is some evidence that it leads to more layoffs. The minimum wage also
causes employers to hire fewer workers in the entry level jobs needed to begin a career.
It also could lead to more automation, or machines replacing workers to produce goods and services.
In addition, the minimum wage could lead to higher prices for consumers to offset higher
costs producers have to pay to their workers. The minimum wage also potentially raises the incentive
for companies to outsource their labor to countries where minimum wages are lower.
Wages for higher paid workers might also be prevented from being raised
if companies have to pay all workers more. And finally, critics of the minimum wage argue that
it hurts smaller companies the most. For small companies, already stressed owners might have to
take on more responsibility since they wouldn’t be able to afford as many workers to help them out.
On the other hand, others maintain that the minimum wage is not only good for a society,
but necessary. There is additional evidence that it in fact does not lead to more layoffs and
automation. A minimum wage also creates additional income, which would be spent by consumers and
therefore ripple through the economy. The idea is that if more workers are making more money,
they are spending more money, and thus companies are also making more money. In addition,
there is evidence that increasing the minimum wage could help eliminate the aforementioned gender and
minority based wage discrimination. The government would also benefit from a higher minimum wage,
as it would presumably have fewer expenses for social programs aimed at the poor.
The government would also gain more revenue from payroll taxes. Most importantly, proponents of the
minimum wage argue that it raises the standard of living for workers in poverty, and because
the minimum wage hasn’t kept up with inflation over the years, it should be frequently raised.
Even more so, there is often a debate within a society not about whether a
minimum wage should exist, but rather about how high a minimum wage should be. While most
economists agree that the minimum wage isn’t a perfect solution to wage discrimination,
politicians maintain that it is an important tool for reducing poverty in society.