However, higher minimum wage or increasing price floor on the price of labor leads to job loss and probable magnitude of those losses. It has been predicted by the standard model of competitive labor markets that higher minimum wage is likely to lead to loss of job among low-skilled employees (Meer and West 2015). A binding minimum wage that is set higher as compared to the competitive equilibrium wage decreases employment for two purposes. Firstly, the employers will substitute away from the low-skilled manual labor that is comparatively costly at present towards other inputs that includes capital. Both product and labor demand will be reduced due to higher minimum wage.
This is because it would increase the unemployment rate, harm worker health and step up living expense. Minimum wage law tends to have a worse effect on the employment rate. In fact, 90% of the company in Hong Kong is small and medium enterprises and their daily operation is already difficult. By setting up the SMW, those companies are required to follow the law but most of them are not able to afford the extra expenses from pay rise. According to Schmitt (2013), the minimum wage has slight or even no noticeable effect on the employment rate in that the cost generated by minimum wage is large relative to most of the firms.
We should raise minimum wage read below to find out why. In america their are 564,708 homeless people in we were to raise minimum wage to try and get rid of this amount of homeless people in america. Some people argue that raising minimum wage would make worker benefits be the first to go in america. This however is not true because these companies would be able to make more money because people would have more money and they can spend some on things they want. People would have a higher work morale because they would be able to make a lot more money than before so they would be more happy to work longer hours.
Increasing minimum wage fights against poverty and gets the person out of the debt. Workers are motivated to work hard for the businesses and to give more support to the family. More disposable income will be injected. A small change in minimum wage hourly can give them a much better standard of living. To employers raise in minimum wage saves them a lot on recruiting employees and invest money on their training.
Therefore the employers must try to reduce labour turnover at any cost. If an industry or a company is said to have a high turnover compared to its competitors, then it means that employees of that company have a shorter average tenure than those of other organisations in the same industry. In today’s world labour turnover is considered as a downside of any corporate. The major disadvantage of labour turnover is that it has not direct effect not only on production but also on the future profits of the organisation. High labour turnover is harmful to the company’s productivity if high performers are leaving and the labour population includes high percentage of beginners.
It has been noted that tax cuts and other government cuts can benefit the employees while putting money in the major company’s pocket. However, the worker who received an increase in their wages feel they are benefiting from the increase. Not taking into consideration the more they make, the more they will have to pay out. Receiving a pay increase also puts the employees into another tax
The red line is the demand curve that represents the interest and how firm decides to hire worker. At point W1, we can deduce that the wage is very low which one of the condition for a firm or corporation to be considered as a sweatshop is actually how competitive market works. The salary may seem to be lower compare to point W and point W2. However, the actual effect or the actual benefit is that it increases the amount of jobs as shown at point Q1. People would like to reduce sweatshop with the objective to banish it, but people also contradict their action at the same time.
The minimum wage is set at Wm and if the minimum wage is set at that point, at point A demand for labour drops at E1 and supply of labour (point B) increases to E2. IMPACT OF MINIMUM WAGE ON EMPLOYMENT As it was stated above the basic competitive model is what is used to set the minimum wage. Therefore using the basic competitive model the effect of minimum wage legislation will be observed (positive or negative effect). The graph below is going to explain in detail; the effects of minimum wage on employment wages D S WM C D
This is a circulation between wages and the profits. For the low-skilled labour, too high minimum wage will lead to increase the unemployment. It is because the employers always demand a skilful and highly educated labour when they pay a high salary for an employee. People with the lowest skill cannot justify the higher wage. Therefore, a small change in the wages for low-skilled labour tends to have a large effect.
High unemployment means that labour resources are not being used efficiently. Hence, full employment should be a major macroeconomic goal of any government because it maximizes output. Inefficiently of using labor resources will cause to high unemployment rate. The result shows that the economics in Malaysia is better with high employment. In economics, unemployment statistics measure the condition and extent of joblessness within an economy.