SOCIOLOGY OF CULTURE-SOC 105

Social Inequality and the US Minimum Wage Policy

Inequality in America is a complex problem, as seen from the social structure and various aspects of income, education, and health. The federal minimum wage policy is one of the key causes of the existing inequality in economic status. As a result of increasing living costs, the federal minimum wage standard has been at $7.25 an hour for over a decade now because it was set in 2009. The stagnation has, however, led to an increase in income disparity through failure to meet the basic needs of low-income earners. This paper explores how the federal minimum wage contributes to maintaining the gap between the ‘haves’ and the ‘have nots,’ possible consequences of wage rise, and proposed policy solutions to these issues.

The Role of Federal Minimum Wage in Economic Disparity

The federal minimum wage, established in 1938 through the Fair Labor Standards Act, was designed to ensure workers’ basic standard of living. However, the effectiveness has declined with time due to inflation and the cost of living surpassing wages. Today, the minimum wage is $7.25 per hour, which has not been changed since 2009, claiming responsibility for increasing income inequalities (Azar et al., 2024). According to the Economic Policy Institute, a full-time worker earning a federal minimum wage gets approximately $15,080 in a year, which is below the federal poverty line for a family of two or more members (Cooper et al., 2021). This constant wage insufficiency has impoverished many full-time employees, increasing income disparities. These problems disproportionately affect women and people of color for which the raise in the minimum wage has been slow or never happened at all. The worst-paid employees are blacks and Hispanics, making them more vulnerable to economic instability (Jardim, 2022). Tragically, such a large percentage of the working poor are federal minimum wage earners because this policy simply recreates the cycle of poverty for those at the bottom of the socioeconomic ladder.

The policy’s limitations hinder upward mobility, reducing opportunities for low-income earners to achieve financial security. It is critical to address the gaps in the federal minimum wage to solve problems concerning economic inequalities. Essential changes in legislation that will require the consideration of an increase in wages and the subsequent review and possibility of the comparison of wages according to the cost of living of the particular region are crucial if the minimum wage is to provide for the intended mandate of providing the basic needs of every worker (Azar et al., 2024).

Social and Economic Implications of Minimum Wage Increases

The debate surrounding an increase in the federal minimum wage highlights divergent views on its potential impact. Its proponents explain it mainly as possible to decrease the country’s poverty level and income gap and increase the income level among low-paid employees. Nonetheless, the Congressional Budget Office (CBO) reported that raising the federal minimum wage to $15 per hour could help around 1.3 million people escape poverty (Cooper et al., 2019). Workers would be able to purchase necessities such as health care, education, and shelter, enhancing their standards and decreasing their dependence on welfare. On the other hand, critics look at potential negative economic consequences and effects that can be disastrous, especially for SMEs. Increased costs of labor can turn employers into laying off employees, cutting their working hours, or raising the prices of goods produced to recover those costs. The CBO estimates that it will lead to job losses of an estimated 1.3 million jobs by forcing companies to cut costs by laying off workers and using other measures such as automation and moving to areas with lower minimum wages, among others (Jardim et al., 2022). As such can obliterate the aim of having a wage raise where some workers may end up worse off.

Nevertheless, empirical evidence from states and municipalities implementing higher minimum wages challenges these concerns. For instance, surge research that analyzes the phased increase in minimum wage in Seattle has small effects on employment. Consequently, rather than evidence of an increase in unemployment or anybody else losing their job due to globalization, workers experienced increased income, indicating that the advantages outcompete possible demerits (Corinth et al., 2021). Such conclusions mean that the efficiency of the minimum wage rise for economic development is contingent upon quite different factors, including economic performance in certain areas and sectors and the ability of certain enterprises to bear higher wages.

Policy Proposals Comparative Perspectives

For policymakers to redress the shortcomings of the federal minimum wages, strategies have to consider capacities required through necessity. Another fairly reasonable way is to introduce the concept of the minimum wage, which is differentiated by several regions, considering the difference in the cost of living (Azar et al., 2024). This system helps to ensure that employees in the costly areas, which include the metropolitan areas, grab reasonable salaries to match their expenses. Individual states like California and New York have passed higher minimum wages at state levels but gradually about inflation and the prevailing economic status. These measures reduce regional imbalances, which are unfavorable on the financial sides of employees in expensive regions.

Another good policy recommendation is to tie the minimum wage to inflation. This avoids situations where wages fail to increase to cater to emerging living costs; hence, the dollar’s purchasing power is well maintained in low-wage earners. Countries like Canada and Australia have practiced this model. In Australia, for instance, the Fair Work Commission undertakes an annual review of the minimum wage to increase it with each increase in inflation rates and other factors (Lathrop et al., 2021). As we have seen, such adjustment from time to time has worked well in helping to avoid a lag in wages and has reduced income disparities.

Also, making the Earned Income Tax Credit (EITC) more generous is an alternative direction. The EITC targets the poor by cutting their taxes and giving them more income through tax credits, which are the most preferred among social welfare policies. The EITC is one of the strongest anti-poverty interventions in the US (Corinth et al., 2021). If a higher minimum wage coupled with EITC would be offered, then it would result in better functioning of the anti-poverty program because it would be a complete package that would look at just the most basic needs of the people today in terms of remunerations but will also try to directly speak to the discrimination that minorities are receiving from employers. When all of these policies are put in place, then income disparity can be significantly reduced to a minimum, and quality of life in terms of income can be improved for workers and ensure economic stability despite increasing costs of living.

Conclusion

The federal minimum wage policy is crucial in shaping economic inequality in the United States. As for the model, the current minimum wage of $7.25 per hour does not guarantee an individual living wage; nonetheless, the increase in minimum wage could bring about a decline in the poverty rate and income inequality. Nonetheless, policymakers must remember the economic costs involved and plan policies that protect the employees and do not harm the business. By learning from the state and even global best practices, the US can develop far better wage policies to further the causes of economic democracy and social justice.

References

Azar, J., Huet-Vaughn, E., Marinescu, I., Taska, B., & Von Wachter, T. (2024). Minimum wage employment effects and labour market concentration. Review of Economic Studies, 91(4), 1843-1883.

Cooper, D., Mokhiber, Z., & Zipperer, B. (2021). Raising the federal minimum wage to $15 by 2025 would lift the pay of 32 million workers. Economic Policy Institute, March 9, 2021.

Corinth, K., Meyer, B. D., Stadnicki, M., & Wu, D. (2021). The anti-poverty, targeting, and labor supply effects of replacing a Child Tax Credit with a child allowance (No. w29366). National Bureau of Economic Research.

Jardim, E., Long, M. C., Plotnick, R., Van Inwegen, E., Vigdor, J., & Wething, H. (2022). Minimum-wage increases and low-wage employment: Evidence from Seattle. American Economic Journal: Economic Policy, 14(2), 263-314.

Lathrop, Y., Lester, T. W., & Wilson, M. (2021). Quantifying the impact of the Fight for $15: $150 billion raises for 26 million workers, with $76 billion going to workers of color. National Employment Law Project.