Pros and Cons of Minimum Wage

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Pros
1. Reduced poverty
The minimum wage can improve the living standard of low-income workers, which ultimately reduce poverty. According to the International Labor Office (2005), reducing poverty and working poverty requires both productivity growth and employment creation. The World Development Report 2004-05 also stated that there is strong empirical evidence that creating decent employment opportunities is the best way to take people out of poverty. As a result, the wealth gap between the rich and the poor can be narrowed.

The Keynesian argument for minimum wages - this suggests that lower-income workers have a high propensity to consume, and that with the extra disposable income from minimum wage, they will spend a high portion the sum which will be injected back into the circular flow of income. In regions and localities where average incomes are low, a higher minimum pay rate can boost total demand for goods and services and create a positive multiplier effect - but much depends on the effect of a pay floor on how many people remain in work.

2. Reduced government spending on social welfare
Since workers are being paid more per hour, their increased purchasing power enable them to meet pay for their basic needs on their own, without relying on government “top-up” welfare benefits. Therefore, this can greatly reduce the government expenditure on the social welfare, and the spending can be used in other ways, such as education and medication.

Cons
1. Reduced employment of the less-skilled workers
Implementation of minimum wage can reduce the employment of the less-skilled workers (Neumark & Wascher, 2008). According to The Wall Street Journal (2009), Economists for the Federal Reserve reviewed over 100 academic studies on the impact of the minimum wage and found overwhelming evidence that lower skilled and young workers have increased rates of unemployment when there is a higher minimum wage. These workers are laid off as their...
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