Is a Legal Minimum Wage Good for an Economy?

IS A LEGAL MINIMUM WAGE GOOD FOR AN ECONOMY?

Introduction

“The care of human life and happiness, and not their destruction, is the first and only object of good government”. -Thomas Jefferson. With the end of absolutism, and the creation of democracy a new concept of State was born, the State’s aim was now to grant a minimum of rights to every single individual in the country, widely referred as fundamental human rights, some of which are right to life, right to liberty or right to freedom of thought. But there is one article present in the Universal Declaration of Human Rights (1948), which does specially relate to the topic discussed in this paper. This article is article 23, on the right to work in favorable conditions and the right to be fairly enough remunerated for himself and his family to have an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.

The above-mentioned right 23 of the UN Declaration of Human Rights makes therefore, almost every State, grant that human dignity, but how could this right be protected? The answer seems to be clear for the majority of the different governments: work regulation and minimum wage.

This essay aims to prove the effectiveness of a minimum wage in economy or conversely, its ineffectiveness. Firstly, the effects of this wage regulation will be studied in the short term, and afterwards, its effects in the long run.

1.Short-term effects

A regulation of a minimum wage enables the individuals in the short term, to buy anything that could be strictly necessary for subsisting, including health care and food, as the level of prices of an economy does not change in the very short run. Apart from providing basic goods, a minimum wage would probably affect the social environment of the citizen, since margination because of economic factors is pretty present not only in current society, but also in prior ones.

Some people state that the minimum wage does not only benefit the individuals, but the whole economy as well. This people explain this by saying that an increase in the wealth of the individual, would incentivize its consuming, making the market wealthier and therefore positively affect the economy as a whole.

We can apparently observe that a minimum wage is convenient in the short term.

2.Long-term effects

We have already analyzed the consequences of a minimum wage in the short term. We will now attempt to see what the consequences would be regarding a bigger period of time.

The establishment of a regulation on the wage would increase the cost of the work factor for the enterprises, especially for the SMEs, which don’t have a representative market share so as to earn enough benefits to afford this measure. This increase on the costs of production would only leave the enterprise with two alternatives, rising up the prize of the good commercialized to obtain a bigger margin, what would be a terrible measure unless there is a monopoly or oligopoly; or dismissing part of the employees, what would be drastic for those workers which are less experienced or qualified. These workers are usually those with a lower salary, the ones for which the minimum wage regulation is created, so in the end, instead of getting an upgrade in their wealth, they see how it falls down.