For long, the minimum wage controversy has been a topic of debate to whether it produces positive or negative effects on society. To begin with, the need for a country to have a minimum wage law was stressed by the international labour organization in 1928. Twenty years later, Australia and New Zealand passed the act and we have been using the term “minimum wage law” ever since. At this point more than 90% of all countries have some kind of minimum wage legislation. Supporters of the minimum wage say that it increases the standard of living of workers, reduces poverty, and forces businesses to be more efficient. Opponents say that if it is high enough to be effective, it increases unemployment, particularly among workers with very low productivity due to inexperience or handicap, thereby harming less skilled workers and possibly excluding some groups from the labor market; additionally it is less effective and more damaging to businesses than other methods of reducing poverty. Although the goals of the minimum wage are to protect the standards of living, there is great disagreement as to whether the minimum wage is effective in attaining its goals. From the time of their introduction, minimum wage laws have been highly controversial and there are many consequences that have to be accounted for once a minimum wage law has been set. In this paper I will be presenting the controversy that exists in setting a minimum wage law on society.
The case against minimum wage laws states the minimum wage law causes unemployment, increases inflation and is unfair. The economics behind the case is rather simple. By placing a minimum wage higher than the equilibrium wage (the rate that would naturally be set by market forces), the supply of labor increases (more workers want the higher pay) while the demand for labor decreases (fewer employers can pay the higher rate, and so they offer less jobs). As a result total employment is effectively reduced. Figure 1 shows this...
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