The effects of major corporations paying low wages

Academic Paper, 2017

8 Pages, Grade: 6.3


Table of contents:


The Minimum Wage

The Effects of Low Wages

Effects of Increasing Wages by Large Corporations




Prime companies, unlike what most many of us believe, are responsible for underpaying workers even as they manage superb profits and healthy balance sheets. A report by the National Employment Law Project has shown that about two-thirds of all American low-wage earners are employees of companies that have more than 100 employees (Berlatsky, 2012). Such companies include McDonald’s and Wal-Mart. In today’s economy, some corporations have discovered that employees are willing to work not only for lesser pay but little benefits if any since the economy is not attractive. More than 90 percent of the top 50 largest employers of these workers were profitable in the last economic year, and more than half of these companies are now enjoying even greater profits than they did before the recession hit, which is a suggestion that they could stomach a raise in the employees’ minimum wages. The increase in the minimum wage, contrary to the beliefs of many, will be felt by the financial giants as opposed to the small business establishments in the country. The federal minimum wage remains at $7.25 since the year 2009 when legislation under the administration of President George W. Bush saw it rise (Berlatsky, 2012). In this regard, this paper seeks to identify what effects the low wages that are paid by the large giants have on the economy as a whole and how raising these would affect the economy.

The Minimum Wage

Minimum wage is the least amount of compensation that a worker is entitled for a day’s work, weekly work or monthly salary and that the employer is mandated to provide (Thilmany, Miller & Tranel, 2002). In essence, it is the lowest amount that employers have to legally pay the workers for a job done. It is also referred to as the market floor for wages and was enacted primarily to rein in on employers that exploited vulnerable young persons and women by paying them lower than what other workers were paid. However, with the enacting of the law, it meant that any worker irrespective of experience, age or gender is entitled to a certain minimum pay for any work done.

Minimum wages were enacted in New Zealand more than a century ago, in 1894 with other countries following suit decades later. Different countries have different rates and it is imperative for the ruling class to determine what the fair reward for services in their countries is. In the United States of America, minimum wage laws were passed in 1938 and enjoyed a steady rise over the years. Besides the formal minimum wages, there are countries that have informal minimum wage where there exists minimum wages that are however not grounded on the statutes. A country like Malaysia does not have minimum wage laws that are grounded in law but there still exists some minimum wage figures for plantation workers.

The Effects of Low Wages

Having low wages for the majority of the American workers can have adverse effect on the micro and macro- economic environment. When most workers are underpaid, companies that deal with serviced provision are likely to be left out of the bracket of a huge segment of the population that can access their services. As a result, low wages offered to workers are a hindrance of achieving economic prosperity as the purchasing power parity is affected by workers that cannot cater for anything else but the basic supplements. The minimum federal minimum wage, as illustrated in figure A, took an upward trend. However, after the economic crisis of 2008-2009 it took a beating and momentarily went down.

Abbildung in dieser Leseprobe nicht enthalten

Companies that sell premium goods and services are automatically locked out of the lowly paid workers and they are forced to survive in the market by adding the costs to those that can afford. It, therefore, means that the effects are two-pronged; pricing out the low paid workers while pricing up the better paid workers. When the largest segment of the job market is priced out of a product, it implies that the profitability of the companies that sell the product is limited, thereby muting their growth prospects and driving them to premium pricing to break even (Berlatsky, 2012).

Low wages also lower the morale of the workers that are directly responsible for the growth of the economy. When the morale of the workers is limited, the production levels are also lowered resulting to a situation where most of companies do not have optimal production. In terms of taxation, the government has more chances of getting more taxes from workers that are more remunerated than those that are only paid the minimum wages. Therefore, this shows that the economic prospect of the country can be directly related to the level of pay that its workers get.

The most worrying statistic of having low paid workers is the strain that they have to endure to access Medicare. Lowest paid workers cannot afford Medicare insurance and as such they use their low salaries to cater for the medical expenses. Hence, it becomes very hard for workers that earn substance levels to scale up the ladder when they have to virtually fund every cost. American social systems are weak and the government is not actively involved in the welfare of its citizens like other countries in its league in terms of wealth. A working person who unfortunately is afflicted by a medical condition is more likely to succumb to it than his or her own counterpart in a country like Sweden or Denmark. Such is because the burden of paying for Medicare is people driven and not government driven unless for veterans, congress or for the incarcerated citizens (Kazis & Miller, 2001).

Paying meager salaries also leads to constant changes in jobs. When persons are not paid anything more than the minimum wages in the companies that they work for, the rate of changes of jobs increase in the quest towards looking for better employers that have better packages besides the wages. When big corporations opt to pay minimum wages to reduce the budget overhead of staffing costs, they expose their corporations to job changes and the instabilities that come with constant hiring and re-hiring.

At the macro-economic level, low wages that are paid by most employers result to rising costs of provision for social support services such as childcare support, unemployment benefits and the pension support. The rising costs are then indirectly borne by the very person that would have remedies the situation by offering better payment terms to the low-cadre workers. Increasing the pay for basic workers would ensure that all working persons are capable of supporting their own and their family needs and they do not have to rely on government social support systems.


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The effects of major corporations paying low wages
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Oliver Tumbo (Author), 2017, The effects of major corporations paying low wages, Munich, GRIN Verlag,


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