Arguments in favour of Minimum Wage Laws

Supporters of the minimum wage claim it has these effects:

  • Increases the standard of living for the poorest and most vulnerable class in society and raises average.
  • Motivates and encourages employee to work harder.
  • Does not have budget consequence on government. "Neither taxes nor public sector borrowing requirements rise."
  • Minimum wage is administratively simple; workers only need to report violations of wages less than minimum, minimizing a need for a large enforcement agency.
  • Stimulates consumption, by putting more money in the hands of low-income people who spend their entire paychecks.
  • Increases the work ethic of those who earn very little, as employers demand more return from the higher cost of hiring these employees.
  • Decreases the cost of government social welfare programs by increasing incomes for the lowest-paid.
  • Does not have a substantial effect on unemployment compared to most other economic factors, and so does not put any extra pressure on welfare systems.

minimum wages

Arguments against Minimum Wage Laws

Opponents of the minimum wage claim it has these effects:

  • Excludes low cost competitors from labor markets, hampers firms in reducing wage costs during trade downturns (etc.), generates various industrial-economic inefficiencies as well as unemployment, poverty, and price rises.
  • Hurts small business more than large business.
  • Reduces quantity demanded of workers. This may manifest itself through a reduction in the number of hours worked by individuals, or through a reduction in the number of jobs.
  • Reduces profit margins of business owners employing minimum wage workers, thus encouraging a move to businesses that do not employ low-skill workers.
  • Businesses try to compensate for the decrease in profit by simply raising the prices of the goods being sold thus causing inflation and increasing the costs of goods and services produced.
  • Does not improve the situation of those in poverty, it benefits some at the expense of the poorest and least productive.
  • Discourages further education among the poor by enticing people to enter the job market.
  • Causes outsourcing and loss of domestic manufacturing jobs to other countries.