Minimum Wage Vs. Unemployment
For American workers, minimum wage and unemployment laws protect against unfair labor practices. These two types of regulations also provide workers with ways to manage their income even during periods of unemployment or economic hardship. The relationship between minimum wage and unemployment is a major subject of interest to economists as well as those people whose lives are affected by the laws directly.
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Purpose
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Both unemployment insurance and minimum wage laws have an important economic and social purpose. Unemployment insurance is intended to give workers a source of income when they unexpectedly lose their job. Unemployment benefits prevent home foreclosures and provide families with funds for necessities like food and clothing. Minimum wage laws mandate the hourly wage that most types of workers are paid. This prevents employers from reducing wages below the minimum level or replacing workers with others who will work for less.
Function
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Unemployed workers must apply for unemployment benefits at a state office. Those who meet eligibility requirements receive regular checks in the mail, thus replacing the steady income of a paycheck. Minimum wage occurs automatically, with employers required to submit information about their employees' salaries to the government for tax purposes and to ensure that minimum wage regulations are met.
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Relationship
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Economists have done extensive research on the relationship between minimum wage and unemployment. The general belief is that a higher minimum wage increases unemployment since employers must pay each worker more, thus preventing them from hiring additional workers. Whether or not raising the minimum wage (or extending unemployment benefits) is a sound financial or social decision is a subject of continuous debate. A study commissioned by president Bill Clinton's administration resulted in Princeton and Harvard economists finding that minimum wage increases might in fact have no detrimental effect on unemployment statistics.
Differences
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The key difference between minimum wage and unemployment insurance is the fact that unemployment is intended to be a temporary measure. Workers are required to seek employment while they receive unemployment benefits, and all states enforce limits on how long an individual can receive payments. Minimum wage is more of a permanent system, with periodic raises that reflect increases in the cost of living and the opportunity for minimum wage employees to earn higher salaries through seniority or good performance.
Funding
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Another important consideration in comparing minimum wage to unemployment is the source of funding. State unemployment payments come from payroll taxes imposed by the state and administered by employers. These are the same employers who are responsible for paying their workers at or above the federal minimum wage. These funding sources also affect the way new laws are made, since extensions of unemployment benefits place a higher burden on workers indirectly and can reduce payments to the unemployed since more people are receiving payments.
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References
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