Effects of Minimum Wage

Effects of Minimum Wage

        According to the Fair Standards Act, all employers must meet or exceed a prescribed minimum wage rate. From time to time, this rate changes to compensate for inflation in the economy. This fluctuation has many different effects on businesses, local employment, as well as individual workers. I plan to inform you about how each group is affected from a microeconomic point of view.

        First off, I will discuss the challenges of economic growth experienced by businesses that rely largely on unskilled labor. Because a new variable is being introduced, wage expenses will dramatically increase. The profit margins of companies like this almost always decrease while their total expenses increase. This gives these companies little room to negotiate wages for their different levels of employees.

         Next, I want to show how this pressure on businesses can affect local employment. Since minimum wage is a large expense for an unskilled worker, many businesses will could result in strict hiring decisions or even layoffs. These jobs are suited for young workers looking for a first job, but as minimum wage increases, more and more people will be willing to accept working these jobs. According to the Employment Policy Institute, for every 10 percent increase in the minimum wage rate, there is a 5 to 9 percent increase in youth labor. When this happens, those youth workers have trouble finding jobs even though they would have been willing to accept lower paying jobs. In some regions, this trend

has caused unemployment rates to rise which usually goes hand in hand with crime rates and homelessness.

        Finally, it’s time to see how all of this effects us, as individuals. The obvious benefit is the added income, for unskilled workers, provided by an increase in minimum wage. Most skilled workers will also receive a boost in pay because an increase in the minimum wage would cause all wages for employees above to increase as well. As a result of this wage expense increase, businesses are more likely to develop automation techniques to complete jobs cheaper. Another possibility is the risk of these businesses outsourcing work to foreign countries to push down their wage expenses. Again, this will cause a higher unemployment rate among Americans because many businesses simply won’t pay the new minimum wage rate. Instead they will look for any possible cheaper way to meet their needs. But, there is a benefit for young employees who will earning a higher rate which is definitely enough to cover their expenses. In theory, this should allow more household income to spend on family needs.  According to the U.S. Census, only about seventeen percent of minimum wage earners are able to provide enough to support a family on their own.