The Minimum Wage Law

The minimum wage law is fundamentally a government imposed price control on the lowest hourly, daily or monthly remuneration that employers may legally pay their workers. Price controls usually set a standard showing the minimum price applicable to goods or services. Governments impose minimum wage laws so as to provide its citizens with wages deemed fair at various jobs. This is in an effort to improve the quality of life of its people by creating a level economic ground. Positions with basic non technical skills are mostly where minimum wage laws apply.

The benefits of the minimum wage law are that it ensures improved living standards of workers, it reduces poverty and facilitates efficient running of business. The poor and vulnerable groups are able to get sufficient income for their livelihood. Setting of minimum wage also increases consumption because the low income earners have more money to spend. This law encourages employees to work hard so as to maximise their income, discourage people from engaging in illegal activities to obtain money as they get enough pay when employed, encourages workers to advance their skills so as to have higher paying jobs and stimulates technological advancement, thus improved business efficiency.

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All these benefits help in promoting economic growth and stability as a result of increased supply of commodities due to hard working labour, increased spending thus high demand and reduction of operating costs due to automation of industries. In many countries, tax systems demand that people earning more pay more taxes. If a government establishes a higher minimum wage then there is increased revenue resulting from the high taxation. This revenue can be utilised to steer economic growth (Koeniger, Leonardi & Nunziata, 2007).

The minimum wage law can however impact the economy negatively retarding its growth. Small businesses get affected most by the minimum wage as compared to large ones. The smaller businesses may be forced out since they cannot be able to sustain their workforce with the minimum wages. Due to increased salary expenses, most companies lay off their workers thus increasing unemployment. Also, businesses which offer their employees minimum wage do not provide them with employment benefits. These organisations usually employ parttime workers and discourage over-time (Koeniger, Leonardi & Nunziata, 2007). To a firm or organisation, high minimum wage legislation means increased expenses such as for labour. There is increased cost of doing business thus discouraging people from investing. Minimum wage can precipitate inflation since firms may raise prices of their goods or services to cushion their businesses from running into losses (Even, Macpherson, & Employment Policies Inst., 2000).

Another effect of the minimum wage is increase in resources necessary to maintain the employees. This in turn decreases the on- the- job training opportunities available in organisations. The cost of employing workers increases making companies to reduce the number of openings for workers to obtain necessary skills of work. This can limit the mobility of the workers since they cannot be able to obtain skills to be more competitive. Minimum wage affects those people who have less skills the most. With the few opportunities available, the competition increases. The employers select those people with higher skills thus making it hard for the low skilled to acquire those skills (Even, Macpherson, & Employment Policies Inst., 2000).

The minimum wage law should be greatly discouraged from being used as a tool to help improve living standards. While it can help to improve the living standards of the workers whose wages are raised, it can impoverish those who are not employed or who have lost their jobs. It should be realised that people compete in the labour market at different levels. The minimum wage policy has a potential of lowering labour demand and causing a rise in the supply of labour in the relevant market and increasing the price of goods or services using means that are not natural in the market result to a rise in supply while decreasing the demand. The outcome is a surplus of the service or commodity. Thus the demand for workers in the labour market is reduced resulting to increased unemployment. The ability of some workers to compete is compromised making them to accept wages that are lower and locking them out of the labour force. Job opportunities for these workers are lost (McEachern, 2011).

Imposing minimum wages to companies can also force companies to restructure their operations. Some companies may outsource jobs to foreigners who can provide a cheap labour. This means increased unemployment among its citizens. Other companies get motivated by the minimum wage to automate their operations. Mechanisation locks out a lot of people from their roles. Minimum wage can also offer foreign firms a competitive advantage over the local ones. This is because the foreign companies can be able to provide quality services or goods at lower prices. The cost of living differs in various places and thus it is difficult to define an agreeable minimum wage applicable to all people. Additionally, removing the minimum wage will encourage hiring of more citizens to work in the low pay, non skilled jobs (Koeniger, Leonardi & Nunziata, 2007). This will result to increased government revenues through taxes.