The Negative Effects of Minimum Wages on the United States Economy

Topics: Minimum wage, Employment, Supply and demand Pages: 8 (2874 words) Published: April 1, 2012
Minimum wage is a common economic principle that influences and impacts social and individual are government policies. The term can be defined as, “the lowest level of earnings for employees set by a government. Many nations across the world have adopted a minimum wage policy to ensure can maintain a minimum quality of life. Over time many nations have seen both positive and negative effects from this policy. The minimum wage concept has been around for a very long time. The first signs of this approach can be dated back to 1894 in New Zealand, according to the Organization for Economic Cooperation and Development. This theory was introduced to the United States in 1938 in response to the Great Depression and offered workers a guarantee on the minimum amount of hourly wage for the work they performed. The purpose of this approach was to help governments ensure all citizens were provided a basic standard of life and to help governments improve their citizens position with regards to the income brackets.

As a result, instead of many countries have having a large amount of underpaid workers or high poverty rates, the minimum wage laws seeks to offer a level of economic equality. Minimum wage laws have forced companies to pay individuals equally, regardless of sex, race or, creed. The minimum wage approach also effects price control and has essentially offered governments the ability to control and set a minimum price on various goods and services. The positions minimum wage is usually associated to require basic skills or nontechnical skilled workers and often allows companies and small businesses the ability to avoid offering employment benefits. Another benefit this approach offers companies is the ability to employ more part-time individuals and potentially avoid paying overtime. This has produced two schools of thought and a healthy debate on the benefits of minimum wage. On one side, many economists will argue that from a supply standpoint, wages can place a large burden on small businesses, yet on the other side, wages set to low result in increased rates of poverty.

In my paper, I will discuss minimum wages from microeconomic standpoint and how increases will produce negative effects. The minimum wage theory as it relates to business, employment rates, and individuals. My research will also outline problems the minimum wage theory has presented for such entity’s outlined above and the impacts it has imposes to work incentive. This research will also identify the pros and a con this approach has had on our society and its positive and negative contributions. The purpose of this paper is to also argue that increases in this program would result in more harm to the country’s economic position than good.

Over time minimum wage from a microeconomic standpoint has offered both positive and negative impacts on families, individual workers, business, and local economies. In a free market where price controls are implemented, the theory of supply and demand can become distorted. When a commodity is in high demand, the price generally goes up. On the other side, when an item is in low demand the price goes down. This theory is inherited by business and the bases for their production decisions. When consumer demand increases, companies must react and increase their production to meet this demand. Problems with this theory are usually seen when price controls force set forth government requires companies to pay higher prices for items such as labor then they are actually worth. Also, when a particular item is not in demand, according to the supply and demand, an increase is not warranted. Over time, when increases in minimum wages are imposed on companies they tend give up additional labor.

From a consumer standpoint, minimum wage impacts overall prices. When businesses are unwilling to absorb increases, the additional cost is added to the good and services they offer. Theoretically it starts a...
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