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Minimum Wage Causes Unemployment

By eeileenn Sep 17, 2012 483 Words
Minimum wage causes unemployment
United States has established minimum wage since 1938 because they believe that minimum wage is the first step that helps to provide a better and decent life to the people. (Edwards at al, 2007) From 1997, the United States federal minimum wage was USD5.15 per hour and up till today, it has increases it to USD7.25 per hour. (Edwards at al, 2007) Though increased of wages will bring a decent life to the people, it will also damage the economy of the United States. Gorman (N.D) stated “although minimum wage laws can set wages, they cannot guarantee jobs.”

From the demand and supply curve above, we can see that the minimum wage is set above the equilibrium price; this is known as the price floor. Therefore, when there is an increase in the minimum wage, the supply of labour will increase. However, the demand of the labour from employers will decrease. This will lead to an increase number of people to be unemployed due to the minimum wage. When there is an increase in the minimum wage, businesses will start to hire lesser people and this will result in the increase of unemployment. Countries such as China, where there is no minimum wage, the labour costs of the workers are lower. When the labour costs are lower, company will start to offshore outsourcing their business to countries where there is lower labour costs and tax savings. This will affect the country’s economy because more job opportunities are given to people outside the United States with no minimum wages, especially unskilled workers. It is expensive to pay unskilled workers such as teenagers with a minimum wages. By accepting lower wages in return for training, this will help the unskilled workers to increase their future income. (Gorman, N.D) Many people who do not think in the economic way see the minimum wage policy as a way to help to balance the wealth from the rich to the poor and also to protect the weak, because the reason why some people are against the minimum wage is that they hate poor people. (Carden, 2011) In the economic way of thinking, by increasing minimum wage will increase the high labour costs of company, it will eliminate many people of out the job market. (Laffer and Moore, 2010) Therefore, in the economic way of thinking, minimum wages is actually one of the factors that cause unemployment. If there is no minimum wage, company will hire more people because the labour costs is cheap. Laffer and Moore (2010) stated “If complete repeal of the minimum wage is not possible, then the second-best policy would be to exempt teenagers.” Thus, exempting teenagers with minimum wage will help the teenager to have better employment opportunities; it will also increase their future income once they have the relevant skills in the working society

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