December 1, 2010

Ireland's Minimum Wage

You may or may not have heard that Ireland is in serious financial trouble. With sky high debt and a rising unemployment rate some fear that Ireland is headed for bankruptcy. Recently, both the EU and the Irish government have been taking steps to right these problems. One of these steps is to decrease the minimum wage of Ireland by 1 Euro. In the article “Cowen Defends Minimum Wage” Taoiseach (Prime Minister) Brian Cowen is defending the plan to reduce the minimum wage and Labour leader Eamon Gilmore disagreement with the plan.
Eamon Gilmore argues that this reduction of the minimum wage will result in more borrowing from banks. Brian Cowen says that “the whole idea is to keep as many people in work at a time when the trading environment is very difficult.” So who is right? As we all know a minimum wage results in employers having to pay more than the market equilibrium price for labor. This results in employers must reduce the amount of labor they employ so there becomes a surplus of labor. Ireland has above a 17% unemployment rate. What Eamon Gilmore is concerned about is that this reduction in wages will cause a economic strain on the poor and people earning the minimum wage which will result in these people borrowing more money. This is not the case, the reduction of the minimum wage means that it moves the price of labor closer to the equilibrium. It will reduce the surplus of labor. This means that it will not only help reduce the unemployment rate which reduces the amount of people drawing unemployment benefits from the government, saving the Irish government money which it desperately needs. But it also means that companies can offer more hours to employees. So across the board anyone who is affected by this decrease of minimum wage is better off. They can either find a job or work more and earn more money. So this increase in pay means that they will borrow less money to pay their bills and maybe even begin to pay back the loans they currently have.

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