How The Minimum Wage Affects The Economy

Good Essays
In a pure economics sense, Brown, Gilroy and Kohen(1982) states that “the effect of the minimum wage in the simplest is that employment is reduced and the efficiency of the labour market is impaired because some individuals whose marginal product exceeds their reservation wage are unable to work” (Brown, Gilroy and Kohen, 1982).
The “employment effect” (De Fraja, 1999) suggests that an increase in minimum wage will restrict job opportunities, resulting in a loss of jobs and potential lowering of the participation rate. On the other hand, more people will potentially be lured to the job market by higher paying jobs. Brown (1998) states that these views are theoretical and don’t necessarily equate to what will occur due to arrange of other issues such as whether displaced workers continue to look for employment and hence remain part of the participation rate. Also if an economy is in a growth cycle then it is unlikely unemployment would result from a minimum wage increase.
As seen from these sources, this economic viewpoint is correct, the minimum wage does lead to inefficiencies in the market place, however the minimum wage has been introduced for broader reasons such as welfare and political.
Employers are in a position where they need to absorb the
…show more content…
This may be offset by higher prices that suppliers will charge due to the increased cost of producing goods or services. It is important to note that not everyone in the labour market is paid at the minimum wage and not all products and services would be impacted as they may not require minimum wage labour. This will be discussed further when we look at the demographics of who is impacted by the minimum wage in Australia. If firms are not efficient at clawing back the extra cost introduced by the minimum wage, then it could mean lower profit for firms that use minimum (or near minimum) wage

You May Also Find These Documents Helpful

  • Good Essays

    Minimum Wage In today's society it’s expensive to live in America day by day it is very difficult especially if you are living on minimum wage will be showing you some facts about minimum wage and its effect on the economy Minimum Wage is one of the most debated topics it has caused so much speculation over the years but let's start with the facts according to ( Drew Desilver) says The restaurant/food service industry is the single biggest employer of near-minimum-wage also About 20.6 million people…

    • 952 Words
    • 4 Pages
    Good Essays
  • Better Essays

    Minimum Wages

    • 2234 Words
    • 9 Pages

    Minimum wages A minimum wage is the minimum amount of compensation an employee must receive for performing labour. In economic term, minimum wages is the price floor of the pay of the labour that set by the government. The minimum wages rate normally was fixed by legal authority as such, it is illegal to pay an employee less than the minimum wage. Our economic transformation goal is to make Malaysia a high-income nation by 2020, with a per capita income of US$15,000 a year, however there are still…

    • 2234 Words
    • 9 Pages
    Better Essays
  • Good Essays

    Minimum Wage

    • 1384 Words
    • 4 Pages

    Tyler Spence Carriveau English 1301 November 5, 2013 Argument Rough Draft Do minimum wage workers deserve a better paying wage? Perhaps a wage that they are believed to be able to live off of? Will raising the minimum wage help those it really intends to? With unemployment pushing 8% nationwide and costs rising, nationwide people are pushing for minimum wage to be increased. The minimum wage was established by Franklin Roosevelt as part of the New Deal in the 1930’s. The Fair Labor Standards…

    • 1384 Words
    • 4 Pages
    Good Essays
  • Better Essays

    Minimum Wage

    • 1523 Words
    • 7 Pages

    be true that wage rate contribute to unemployment but this essay will discuss wage rate and explain how it could contribute to unemployment if it is below full employment. Thus it will define and discuss minimum wage as it is set above the equilibrium because above the equilibrium it is believed that it leads to unemployment. In explaining the minimum wage this essay will use a graph to illustrate impact of an imposed of a minimum wage. The advantages and disadvantages of minimum wage will be also…

    • 1523 Words
    • 7 Pages
    Better Essays
  • Powerful Essays

    The Minimum Wage

    • 1808 Words
    • 8 Pages

    The Minimum Wage: Who does it really affect? A very controversial question that often comes up is whether or not we should increase, decrease, or eliminate the minimum wage. The Last time we saw a change in the federal minimum wage was July, 24 2009. It was set to $7.25 and we haven’t seen a change since. “The average cost-of-living increase over the past decade is about 26 percent. This means that an item purchased ten years ago would have cost about 26 percent less than it costs to purchase that…

    • 1808 Words
    • 8 Pages
    Powerful Essays
  • Good Essays

    Throughout the years, minimum wage has become an issue that has been viewed in a more negative way. There are many positive effects, but positives are being outweighed by the negatives, with the many important effects of the positives being overlooked. The economy, along with individuals, have benefitted in more ways than one. Minimum wage opens up the opportunities of jobs being offered to those who would not otherwise qualify for the higher paying jobs, which require college degrees (Characteristics…

    • 795 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Minimum Wage

    • 1906 Words
    • 8 Pages

    Minimum wage is defined as the lowest possible income that an employer can legally pay an employee. This ensures that all people are fairly paid and not defrauded by companies or businesses. Minimum wage is now a staple in 90 percent of countries in the world (Minimum). Even with these minimums, a person’s lifestyle is hard to maintain. Sustainability, in my opinion, is the ability to keep or maintain a certain amount of physical or mental property. In this light of sustainability, minimum wage is…

    • 1906 Words
    • 8 Pages
    Good Essays
  • Powerful Essays

    Minimum Wage

    • 1748 Words
    • 7 Pages

    Organization, Minimum wage defines as the lowest basic wage guaranteed by the law as an attempt to put a floor under the wages of a particular subgroup of working population. The progress of minimum wages policy was started after the National Wages Consultative Council Act gazette on 15 September 2011. This provision replaced the Salary Determination Council Act 1974 which is seen not effective to protect the workers welfare in general. The provision aimed to determine and standardize the wage structure…

    • 1748 Words
    • 7 Pages
    Powerful Essays
  • Good Essays

    How To Raise Minimum Wage

    • 1206 Words
    • 5 Pages

    Why Raising Minimum Wage To 15$ An Hour Is Bad For The Economy The minimum wage is the lowest wage permitted by law or by special agreement, but as of late many minimum wage workers have been complaining about their low wage of 7.25 an hour. Many people also believe that the low minimum wage is the reason why a lot of people are in poverty and why there are so many poor people. Common sense would have you believe that if you raise minimum wage you raise the standard of living and you bring people…

    • 1206 Words
    • 5 Pages
    Good Essays
  • Good Essays

    Minimum Wage

    • 601 Words
    • 3 Pages

    recommended raising the minimum wage to benefit workers who cannot support themselves and their families with their current salaries. The articles, Why We Need to Raise the Minimum Wage and Why We Shouldn’t Raise the Minimum Wage tell us that there were some controversies in raising the minimum wage. As an economics major, I believe it is a bad idea to raise the minimum wage because it creates more unemployment, and it will reduce entry-level jobs. Since increasing minimum wage is not the solution to…

    • 601 Words
    • 3 Pages
    Good Essays