The Pros And Cons Of Minimum Wage

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A minimum wage is considered as the lowest compensation that employers may legally pay to employees. Similarly, employees may not sell their labor below the price floor. A price floor is a legal minimum in which the government does not facilitate the price of a good or service to decrease below the floor. The minimum wage has gained impetus among policy makers as a method to lessen rising wage as well as inequality of income. 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. The increase in minimum wage is likely to reduce the hire of workers and they will also fire present workers. In other words, most of the companies move towards computerization, at least partly due to increase in minimum wages. Almost all the workers have diverse level of skills and as a result, higher minimum wage is likely to change the number of workers hired
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