Wages are the compensation for the time, and hard work employees provide the company. The answer to whether an increase in minimum wage has positive or negative effects on country’s economy has been given differently by most economists in the world. Let’s first understand the meaning of minimum wage. Minimum wage is defined as the lowest amount given to an employee hourly, daily, or monthly by the employers. It is the smallest amount the employees get based on their services and market condition. Before minimum wage was introduced, employers were taking advantage by paying less to women and children. Employees are now protected by law in most countries to receive a minimum of the amount for their labor in jobs. Minimum wage regulations give the perfect example of price control as it variates with the market. This variation appears in the form of reduced employment, and it affects the employers who are paying more to their employees. The advantage of higher minimum wages is that it helps the poor employers and increases the overall financial strength of the employers. Its significant disadvantages are it may discourage the employees from working on a low wage which further results in unemployment. However, the increase in minimum wage is never assumed as to provide “free lunch” to the employees.
The analysis done by Nuemark and Washer (1992) is that minimum wages affect the young employees and teens mainly, and effects the rate of unemployment. Some studies have shown that employment rate and the minimum payments do not impact each other either negatively or positively. Kruger (CKK) explains these contradicting explanations by providing statistics. As the policy decisions affect the study of the minimum wage, so this discussion needs a lot of statistical research and economic proofs.This essay aims to provide arguments against the increase of minimum wages. We will further discuss its social and economic effects and will try to provide suitable evidence of our argumentation.
I argue against the increase in minimum wage. Compelling evidence from some researchers has suggested that imposing high wages for the employees leads to unemployment. Researchers have given stoutest indication that setting the minimum threshold of salaries resulted in a decrease in the number of jobs for the inexperienced employees. The jobs that demand a high level of skills if imposed with an increase in minimum wage, their standards for skills in employees are increased readily. Higher minimum wages have proved to be ineffective in improving the financial status of the communities.
To understand the effect of minimum wages on employment we take help from the research done by Card and Krueger (1994). Imposing minimum wage standards decrease the demand for inexperienced employees and increase the demand for experienced professionals. If any company is in need of employees, if the level of minimum wage is high they will prefer selecting the candidates who have more experience and skills rather than those who are new to the field. When this condition arises many companies fire their inexperienced workers as they consider them a liability. The most adversely affected group are inexperienced, and they suffer the most as a result of the increase.
Now, let’s look at its economic effects. For some industries increase in minimum wage results in increasing marginal costs. The actions the companies take in case of such scenario is that they cut the working hours of employees resulting in a decrease in their total monthly earnings. Another issue called “Pay leapfrogging” is the increase in the number of wages for exerting employees to maintain the difference between their and minimum wage. Let’s look at it with the help of a study. In a survey made in 2004, there were 520 companies surveyed, and their production and costs were analyzed. It was observed that the increase in minimum wage dramatically increases the costs and most groups to balance out the expenses cut five works of employees weekly resulting a total of 11563 pounds earning per year, which was not enough to make a standard living.
Minimum pay should not be increased as it has various social effects. According to an economist, high benefits and less compensation lead to a society that manipulates the system and tries to enjoy the benefits. Increased minimum wages also causes issues in a country’s politics, as we see that when the minimum wages were increased in the UK, due to the resulted unemployment, most people tried moving to other European countries to get better chances of jobs and earn their livelihood. The cost of living in the UK was also a factor in the increase in wages, but with the rise in unemployment, the employees had to move to other countries to make a living. Increase in minimum wages and unequal pay distribution also is a reason to social injustice and poverty in unemployed people and resulted in depression and hate for the government. With the increase in wages, there is always an increase in taxes, and it eventually results in a decline in the social status of the country.
Looking at some of the positive effects, there are many employees for who a job means living. The people who are living in poverty, an increase in wages gives them a push in keeping up with inflation and with increasing cost of living. Its application has also resulted positively in some countries like in America increase in minimum wages helped overcome poverty in specific areas. Some factors like tax credit when decrease lower than earning of poor people it improves the financial status of the people. It increases citizen’s respect for the government and thinks of the state as a help in their time of need. It also decreases the financial difference between rich and the poor. In a study, it was observed that increasing the minimum pay increased employee retention. This study described how an increase in minimum wage increased pay rate and resulted in increased motivation in workers to work more productively. With the addition of motivation, the businesses flourished as the employers did not have to invest more in training new employers, this helped in the expansion of companies.
In my opinion low wages lead to a direct rise in financial status of the poor and low-income people. Higher minimum wages help desirably to increase the economic stability of the country, but it also results in some negative factors that are more critical and important in a country’s policies. The minimum wage has both negative and positive effects. But after considering the negative factors, the arguments against it seem to be more powerful than ones in favor. From a society’s point of view it is beneficial that minimum wages are increasing, but as for the economic structure of the whole country and people in business, it affects negatively. However, the evidence is less to support the fact that increasing minimum pay increased the financial stability of nations and it mainly is proved that minimum wage discourages the employees from making use of very low wage employees and supports those with skills and experience. But looking at the big picture the evidence we collected from these researchers help us believe that increase in minimum had proper short term but adverse long term effects, and for a country’s economy, the long term benefits matter more.
By this conclusion, I am against the increase of minimum wages.
Stigler, G. J. (1946). The Economics of minimum wage legislation. The American Economic Review, 36(3), 358-365.
Brown, C., Gilroy, C., & Cohen, A. (1982). The effect of the minimum wage on employment and unemployment. Journal of Economic Literature, 20(2), 487-528.
Neumark, D., & Wascher, W. (1992). Employment effects of minimum and subminimum wages: panel data on state minimum wage laws. ILR Review, 46(1), 55-81.
Card, D., & Krueger, A. B. (1993). Minimum wages and employment: A case study of the fast food industry in New Jersey and Pennsylvania (No. w4509). National Bureau of Economic Research.