ipl-logo

Effects Of Minimum Wage On Unemployment

1922 Words8 Pages

This paper aims to analyze the effects of minimum wage on equality and unemployment from various perspectives. First of all, theories from welfare economics have been used to explain the effects of minimum wage of equality and unemployment. Moreover, statistics and data related to effects of minimum wage on equality and unemployment have been collected from World Bank database and thereby analyzed using graphical tools. Lastly, insights from economic journals and articles related to effects of minimum wage on equality and unemployment have been discussed. 2. Theoretical analysis: 2.1. Effect of minimum wage on unemployment from theoretical perspective: Some economics theories assert that minimum wage legislation leads to a rise in unemployment, …show more content…

That is, the employers demand labor equal to Qe regardless of the wage rate, probably because employees have unique skills and talents. In such a case, if the minimum wage rises then there would be no change in the employment level i.e. it would remain equal to Qe. Moreover, if the minimum wage is set below the equilibrium wage then again there would be no impact on the employment level since that minimum wage legislation would be non – binding. (Besanko, David, Dranove, & Shanley, 2000) 2.2. Effect of minimum wage on equality from theoretical perspective: Minimum wage legislation is good for those employees who remain employed after the legislation as they are now getting higher wages as compared to before. (Mankiw, 2008) But it is bad for those employees who get laid off (i.e. become unemployed) because the employers now find it expensive to hire them due to the minimum wage legislation. (Besanko, David, Dranove, & Shanley, 2000) Thus, minimum wage leads to a rise in inequality. This would be explained using a hypothetical example. Suppose there were two people in the economy A and B who were getting equal wages $10. Now there is enactment of the minimum wage legislation that employers must pay atleast $12 wages. Due to this legislation, the employer decided to keep employee A in his firm and lay off employee B because employee A was better at work than employee B. Thus, now employee A earns $12 (i.e. $2 higher than …show more content…

minimum wage legislation leads to a rise in unemployment rate in case of USA. The effect of minimum wage on unemployment rate in case of UK is depicted below: The upward sloping trend line and positive regression coefficient (+1.717) in the graph above shows that the effect of minimum wage on unemployment rate is positive i.e. minimum wage legislation leads to a rise in unemployment rate in case of UK as well. 3.2. Effect of minimum wage on equality from empirical perspective: Data on minimum wages and Gini index of various countries has been retrieved from Federal Reserve Bank of ST. Louis respectively. This data has been analyzed using graphical tools as follows in order to determine the effect of minimum wage legislation on equality. The effect of minimum wage on equality in case of USA is depicted below: The upward sloping trend line and positive regression coefficient (+0.7138) in the graph above shows that the effect of minimum wage on Gini index (inequality) is positive i.e. minimum wage legislation leads to a rise in inequality (and fall in equality) in case of

Show More
Related

  • Pros And Cons Of Raising The Minimum Wage

    1094 Words  | 5 Pages

    First, one main reason that the minimum wage should be raised is because the economy will prosper. “Economic Policy Institute stated that a minimum wage increase from the current rate of $7.25 an hour to $10.10 would inject $22.1 billion net into the economy and create about 85,000 new jobs over a three-year phase-in period” (ProCon). This quote shows that the economy will flourish from the increase of the minimum wage and that unemployment will decrease. Another quote that shows how raising the minimum wage will affect employment is “To the extent that through these contour effects it affords as much as 70 percent of the workforce greater purchasing power, it effectively increases aggregate demand for goods and services, which should ultimately lead to the creation of more jobs” (Challenger 19). Bryan Covert supports raising the minimum wage by

    Read More

  • Essay On Raising The Federal Minimum Wage

    733 Words  | 3 Pages

    Increasing the minimum wage only does positive growth because “...authors found little or no evidence of a negative association between minimum wages or employment”. ("How Does a Federal minimum Wage Hike Affect Aggregate Household Spending?”) Increasing the minimum wage will only cause positive growth in a topic of employment. Raising the

    Read More

  • Minimum Wage Sociology

    1153 Words  | 5 Pages

    Because taking into account negative employment effects and increases in consumer prices induced by the minimum wage would wipe out any positive direct effects on household affected by the minimum wage. The minimum wage becomes even less effective in reducing income inequality when negative employment effects are taken into account. I will address the negative effects in sociological aspects by the

    Read More

  • Increase Minimum Wage Essay

    607 Words  | 3 Pages

    There are a lot of potential benefits for an increase in minimum wage and on the surface it’s hard to see why you wouldn’t want to increase the wage. One of the clearest to see is that an increase to the minimum wage will also increase the spending for each household during the following years. So it works to help stimulate the economy in whatever area you increase the minimum wage. Along those same lines increasing the minimum wage will lead to a decrease in poverty as well. With the decrease in poverty you will also see a decrease in government spending on welfare items because the individuals receiving the higher wage in theory will be able to pay for these services/welfare items without assistance.

    Read More

  • Persuasive Essay On Minimum Wage

    711 Words  | 3 Pages

    If America raises the minimum wage to $9.00, it will help people in need or in poverty, but it also won’t hurt people in the workforce. If you increase the minimum wage to $15.00 it will make unemployment rates go high up. Which in the process, makes the homelessness rates go up in the country and in your community. If you keep the minimum wage at $7.25 people will stay in poverty and homeless or on the verge of homelessness.

    Read More

  • Should The Minimum Wage Be Increased?

    601 Words  | 3 Pages

    According to William Dunkelberg, a writer for Forbes magazine, by raising minimum wage there could become less jobs than before. Though the people who have jobs would be making more money, smaller companies wouldn’t be able to pay for their employee’s, and would have to let people go. “Small businesses stay in business

    Read More

  • Minimum Wage In Texas

    1993 Words  | 8 Pages

    Minimum wage would raise the wages of many workers and increment benefits what disadvantaged workers. An estimated 6.9 million workers would receive an incrementation in their hourly wage if the minimum rage were raised to $10.15 by 2015. Due to the spill over effect the 10.5 million workers earning up to a dollar above minimum wage would withal be liable to benefit from an incrementation. Women are the most astronomically immense group of beneficiaries from a minimum wage increase. Sixty percent of workers who would benefit from an incrementation are women.

    Read More

  • Minimum Wage Should Not Be Raised

    495 Words  | 2 Pages

    Although a minority of workers will experience pay raise or may even be brought out of poverty, the majority of workers would face unemployment and, if not that, would only be allowed to work for a short period of time in order for their bosses to compensate for the raise in mandatory pay. Also, some economists dispute that raising the minimum wage will have little to no effect on poverty rates altogether. For these reasons, I do not believe the minimum wage should be

    Read More

  • Pros And Cons Of Rent Control Policies

    687 Words  | 3 Pages

    Minimum wage is an example of price floor policy and it defines the lowest hourly wage that an employer is legally required to pay to their employees for their labor (United States Department of Labor, 2021). The purpose of this policy is to establish a baseline wage that employers must pay to their employees to ensure that they are being fairly compensated for their work. The intention is to provide a decent living standard for workers through economic equality, reduce poverty and stimulate economic growth by increasing consumer spending power (Maverick, 2022). However, this type of policy can also have some negative impacts as it can lead to job losses, especially for low-skilled workers, and may result in higher prices for goods and services (Maverick,

    Read More

  • Minimum Wage: A Case Study

    315 Words  | 2 Pages

    One of the elasticity conditions that make the statement about increasing the minimum wage resulting in less employment for employees who now earn less than the minimum wage is the price inelastic condition which states "...when demand is price inelastic, a given percentage change in price in a smaller percentage change in quantity demanded" (Rittenberg and Tregarthen, 2013, p. 116). The reason this elasticity condition rings true is because the total percentage change in the revenue of the minimum wage workers would still rise if there is a smaller percentage change of under minimum wage workers that were to be unemployed than the percentage of the wage increase. The second elasticity condition that would make the statement

    Read More

  • The Importance Of Raising Minimum Wage

    776 Words  | 4 Pages

    Minimum wage Minimum wage in America is poverty it creates a wage lower than the living wage. It 's only backbone of support is social welfare and the affordable care act medicaid and obama care so people who have low wage paying jobs and minimum wage has to rely on taxpayers and the government to pay with their subsidizes, Because social welfare no longer becomes support but becomes a lifestyle. Minimum wage is set by the Department of labor, and fair labor standards act they set a minimum wage and a overtime pay. Why isn 't minimum wage raised to living wage or out of poverty level? Because if minimum wage goes up so does the prices of goods.

    Read More

  • Minimum Wage Pros And Cons

    1536 Words  | 7 Pages

    Introduction Minimum wage is the lowest hourly rate an employer can pay an employee for hours worked. The topic of raising the minimum wage is a sensitive issue for many people. The livelihood of many relevant stakeholders will be directly effected by policies created in regards to raising minimum wage, both positively and negatively. This paper will examine the history and current state of minimum wage. It will identify the issues connected to raising minimum wage, analyze the arguments for and against, and make recommendations based on the analysis.

    Read More

  • Inflation Effects On Minimum Wage

    104 Words  | 1 Pages

    A more detrimental impact on the current minimum wage in our economy is the inflation rates and the fact that inflation tends to reduce the populations purchasing power of money. According to input by McConnell, Brue, and Flynn, inflation is caused by an excess of total spending that exceeds a firm’s production volume (McConnell Pg 206). In other words, by raising the minimum wage and creating human stimulus, businesses can reach full employment and maximum output. Minimum wage affects inflation because inflation imposes a domino effect in overall economic health and success. Increased costs reduce supply resulting in less total output and employment cuts.

    Read More

  • Essay On Increase In Minimum Wage

    704 Words  | 3 Pages

    In the past three years, many politicians and labor unions have been pushing for an increase in minimum wage. Minimum wage is the lowest set wage by a law of a government body. An increase in minimum will benefit some people, and hurt others. An increase in minimum wage will cause benefit in the short run but will be very damaging to the economy in the long run. There should not be an increase in minimum wage because it is unhealthy to the economy in the long run and it will be the major cause of job loss, increase in inflation, competition, and the price level of goods and services.

    Read More

  • Argumentative Essay On Minimum Wage

    1586 Words  | 7 Pages

    1. Introduction In the modest term, a minimum wage is a lawfully authorized minor bound for wages, but the term “lawfully authorised” is unclear, leading too many different kinds of minimum wages institutions (Cunningham et al, 2007:19). It further states that in the most straight forward cases, such as Brazil and Bolivia, the federal government identifies a wage level and all employers in the country must pay at that level or above it (2007:19). Economist have tended to oppose minimum wage on the grounds that they reduce employment , hurting many of those they are supposed to help (the economist:24/11/2012).

    Read More

More about Effects Of Minimum Wage On Unemployment

Open Document