Business administration is the general management of a business. It includes all aspects of seeing and supervising business operations and related field which include Accounting, Finance and Marketing. The administration of a business includes performing business operations and decision making. In general business administration refers to the broader management function including the associated finance personnel and MIS services. Business administration can be related to the controversial issue of minimum wage which has raised concerns in the society and countries as a whole. Minimum wage and business administration are related in that business administration is associated with decision making policies and among these policies that involve financial decision making is the minimum wage policy which is a controversial issues in the society.
Minimum wage can be defined as “the minimum amount of remuneration that an employer is required to pay employees for the work performed during a given period, which cannot be deducted by a collective agreement or any individual contract”. This definition refers to the binding nature of minimum wages, regardless of the method of fixing them. Minimum wages can be set by federal government, decision of a competent authority, a wage board, a wage council, or by industrial or labor courts or tribunals. Minimum wages can also be set by giving the force of law to provisions of collective agreements. The major purpose of minimum wages is to protect workers against unduly low pay. They help in ensuring a just and equitable share of the fruits of progress to all, and a minimum living wage to all who are employed and in need of such protection. Minimum wages can also be one element of a policy to overcome poverty and reduce inequality, including those between men and women, by promoting the right to equal remuneration for work of equal value. Minimum wage systems should not be seen or used in isolation, but should be designed in a way to supplement and reinforce other social and employment policies. Several types of measures can be used to tackle income and labor market inequality, including pro-employment policies, social transfers, and creating an enabling environment for sustainable enterprises. The purpose of a minimum wage, which sets a floor, should also be distinguished from collective bargaining, which can be used to set wages above an existing floor.
Economics suggests the minimum wage is a bad idea
The job market, according to elementary economics, is like any other market. It works best if wages are set by supply and demand, not by any other factor, like government impositions and policies. Just as the government does not set a minimum price for shirts or avocados, so they should not be telling employers the lowest amount they can pay workers. Standard economic theory says a government-imposed minimum wage risks the loss of jobs, as there could be some employers only willing to hire workers at a wage below the minimum, and some workers without jobs who would take one that pays below that minimum. By forcing a minimum wage, the government is harming both employers and workers, and hurting the economy’s productivity to boot. Yet when a recent study found that a sharp rise in the minimum wage in Seattle led to loss of jobs and few working hours; what supply and demand theory would predict that it led to a heated debate within the economics profession. The primary complaints of those who found fault with the research was that certain types of workers who may have benefitted from the wage rise were excluded from the analysis.
The minimum wage has become a heated discussion for economists. Thomas Leonard of Princeton writes in his excellent history (pdf) of the minimum wage, The Very Idea of Applying Economics: The Modern Minimum-Wage Controversy and Its Antecedents, that the amount of energy that goes into minimum-wage arguments largely outstrips its importance as a policy matter. Issues like the design of health insurance, tax policy, and entitlement reform are more important policy issues, he says, but don’t inspire nearly the level of rancor less than 2% of American workers received wages at or below the federal minimum in 2016. Leonard believes the minimum wage generates so much angst because it goes right to the heart of how one views free markets. If the minimum wage is good policy, it upends all of orthodox economic theory.
Start at the beginning
The minimum wage’s origins are traced to workers’ movements in industrializing nations in the 19th century. Long hours, low wages, and lack of safety led unions and social reformers to advocate for a variety of laws to protect factory workers. The first minimum-wage laws, which appeared in the 1890s in New Zealand and Australia, and the 1900s in the United Kingdom, were not national wage minimums, like there is today in the US, but minimums for specific industries where there were concerns that workers were being taken advantage of. The minimum wage was set in the United States in the 1910s, but only in some few states, and only for women and children. “Until the advent of a US federal minimum in 1938, men were deemed outside such paternal protection, in broad light of the U.S. Constitution’s explicit protection of the right to free contract,” Leonard explains. The United States set a minimum wage in of twenty five cents per hour in 1938, and has raised it intermittently since (it is not tied to inflation).
From the beginning, it was clear the minimum wage would be a test for economic theory. “The working of this virtual fixing of a minimum wage will be watched with interest by economists,” wrote economists Beatrice and Sidney Webb in their 1897 book Industrial Democracy (The Webs, a married couple, were among the founders of the London School of Economics.)
Though economists debated the merits of the minimum wage throughout the 20th century, serious empirical analysis of the issue did not appear until the 1970s, writes Leonard. At that point, economists began analyzing the impact of the minimum wage by statistically examining what happened to jobs across time when the minimum wage increased. These researchers generally found that a wage minimum removed some jobs from the economy, though they disagreed about how many. Serious mathematical analysis did not appear until the 1970s. By the 1980s, it was overall accepted that the minimum wage had a negative impact on employment. A poll of graduate students top economics programs in the US in 1987 showed that more than 70% agreed that the minimum wage increases unemployment among young and unskilled workers, versus 18% who disagreed and 9% who didn’t have an opinion.
A turning point in the minimum-wage debate came in 1993 when David Card and Alan Krueger, economists at Princeton at that time, published the paper “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania.” The research examined the impact of New Jersey’s minimum wage increase from $4.25 to $5.05. They compared the labor market outcomes for New Jersey’s fast-food employees with nearby fast-food workers in Eastern Pennsylvania, where the minimum wage was not raised. They got no difference between them.
Card and Krueger went on to publish the seminal book Myth and Measurement: The New Economics of the Minimum Wage, in which they made a broad defense of setting a wage floor. They find that the results from natural experiments, like their New Jersey study, did not show hikes to the minimum wage leading to a fall in employment. In fact, they claimed, a number of studies showed that the minimum wage had a positive effect on employment. Earlier research, they argue, was flawed because it relied on statistical techniques that poorly isolated the effect of the minimum wage compared to other factors. Some economists were appalled by Card and Krueger’s stance. Leonard points out that the Nobel Prize-winning economist James Buchanan wrote the following in a 1996 Wall Street Journal op-ed:
Just as no physicist would claim that “water runs uphill,” no proclaimed and respected economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. How do Card and Krueger explain this invalidation of long-held economic theory? They argue that the minimum wage’s beneficial effects are a result of an economic phenomenon called “monopsony.” Labor markets don’t operate like commodity markets; Card and Krueger explain . It isn’t true that companies have to pay the prevailing price for labor, like if they were buying corn or stocks. Rather, to some degree, they are able to set the price for labor; in a monopsony, there is one buyer (an employer) that sets terms for sellers (prospective workers). As a result of this price-setting power, a car factory might end up in a situation in which all of its workers are making seven dollars per hour, but the only way the plant can attract new workers is by offering eight dollars an hour. If they gave those new workers eight dollars an hour, it would be hard to avoid also paying eight dollars to existing workers, given the risk of disruption. So instead of hiring new people, the plant may decide it’s more profitable to keep paying seven dollars and remain understaffed. Card and Krueger argue that, in this case, moving the minimum wage to $8 would increase employment, so long as the company remains profitable.
These controversies of minimum wage rate can be shown through the pros and cons of the minimum wage rate policies.
Why the Minimum Wage Should Be Raised
• An increase in the minimum wage raises the standard of living for impoverished workers.
• The minimum wage hasn’t kept up with inflation. As a result, the pay of many workers, particularly those with families of three or more people, are now well below the poverty level.
• Studies show graduated increases in the minimum wage have a low impact on unemployment.
• Additional income would be spent by consumers and would ripple through the economy if overall budgets for salary grew under a gradual increase in the minimum wage scenario.
• Increasing the minimum wage could help reduce gender- and race-based income inequality.
• Government expenses for social programs aimed at the poor would potentially be reduced. This might result in slightly lower taxes for other Americans.
• Slightly more revenue for the government would be generated from payroll taxes for social security.
Why the Minimum Wage Should Not Be Raised
• In companies with a fixed compensation budget, an increase to the minimum wage could result in layoffs or slower hiring.
• The employers might hire fewer employees in the entry-level jobs needed to begin a career.
• An increase to the minimum wage will provide an incentive for employers to invest in automated processes, technology, and machinery to increase productivity rather than human resources.
• Raises the incentive for companies to outsource labor to countries where minimum wage rates are lower.
• A higher minimum wage could result in an increase of the high school dropout rate.
• Prices might be increased to offset higher labor costs.
• For small companies, already stressed owner/operators might take on more responsibility.
• Wages for higher paid workers might be suppressed, and salary increases might be lower for those not impacted by a higher minimum wage.
The reasons as to why and why not the minimum wage rate should be raised shows the pros and cons of the minimum wage rate and how these controversial issues in the society are associated with decision making in business administration. Minimum wage has both benefit and disadvantages to the country. Minimum wage stimulates the economic growth of a country by increasing the consumption. While it may improve the quality of life of low-income workers, it still depends on the structure of the labor market. Studies show that a moderate increase in minimum wage does not affect employment; however, a high increase may cause unemployment in the country. According to Fanti & Gori (2011), the gradual increase of minimum wage will ensure the stability of the economy as the unemployment rate and taxes will also increase gradually. This will not cause a huge unemployment rate and over inflation to occur in the country. Through balancing the minimum wage levels, it may help to stimulate economic growth and welfare of life.