Impacts of Increasing minimum wage in a country’s economy

Can raising the minimum wage benefit residents’ livelihoods and a country’s economy? Definitely not; research suggests that raising the minimum wage would delay economic development and harm many of the employees it is designed to aid. A rise in the minimum wage would help some employees while pricing others out of the job market. There are millions of jobless employees who are low-skilled and have a low level of education. Due to an increase in the minimum wage, these employees are anticipated to remain unemployed.

Increases in the minimum wage have one major drawback- they increase unemployment among low-skilled employees and young people. Simply put, rises in the minimum wage raise labor expenses for firms, which respond by lowering the number of employees or working hours. Employers frequently respond to rising minimum salaries by cutting other perks and on-the-job training, according to research. Even if low-wage employees are fortunate enough to preserve their jobs and hours worked, they may not be better off owing to diminish benefits or training. In a study presented in the Journal of Labor Economics, the proportion of young workers receiving formal training drops by one to two percentage points for every ten percent increase in the minimum wage.

Workers with a lower educational level are another particularly vulnerable category. According to Bureau of Labor Statistics (BLS) data, workers who did not graduate from high school were particularly affected, with unemployment rising to 21 percent and still at nearly double 2019 levels. In contrast, the unemployment rate for employees with a bachelor’s degree or above is reverting to levels seen in 2019. Low-skilled workers are more likely to be paid at or below the minimum wage.

A rise in high school dropout rates is another unintended consequence of higher minimum wages. The most common misconception is that most minimum-wage workers are adults trying to support their families. In reality, the average minimum-wage worker is a teenager who still lives at home. Because the advantages of rising minimum wages disproportionately favor young people still living at home and adults augmenting their family finances, minimum wages are best viewed as a blunt weapon for raising working-class earnings.

Increasing the minimum wage has a slew of unintended consequences that are both serious and unpleasant. Employers, small and medium firms, will bear a disproportionate share of the additional expenditures. Local neighborhood retailers and companies with razor-thin earnings will be obliged to hike prices to cater to these expenses. Customers may choose to move their business elsewhere as a result of the rising pricing. Losing clients implies losing money, which may force the company to lay off employees. Large firms with enormous resources will consider the increasing labor expenses and decide whether or not to invest in technology to dispense with employees. The foodservice sector, hotel, retail, construction, and manufacturing will all be affected by this trend shortly.

Amazon recently debuted several Amazon Go prototype stores, which it describes as “a new sort of store utilizing the world’s most advanced shopping technology.” There will be no queues, and there will be no checkout; “grab and go!” To save money, fast food restaurants and substantial department shops will use self-service checkout. Corporate executives will consider the unknown future expenses of higher raises, as well as the ever-increasing insurance expenses and the time-consuming chore of recruiting, training, and dealing with turnover. Having the technology takeover is both more manageable and less expensive. The unexpected effect will be that considerably less employment will be available for people who most need them.

Firms may become uncompetitive as a result of this. A higher minimum wage may drive up expenses in certain circumstances, forcing a company to close because it can no longer pay wage expenditures- this might be a particular issue if it operates in a worldwide market. Its higher pay expenses render it uncompetitive compared to nations with lower labor prices.

A minimum salary may result in cost-push inflation because business’ expenses are anticipated to rise, which will be passed on to consumers. This is considerably more likely if wage differentials remain.

The most impoverished individuals benefit the least from the rise in the minimum wage. The minimum wage has the disadvantage of not increasing the salaries of the lowest income groups. This is because the destitute people rely on government assistance and are thus unaffected by the minimum wage. There is little influence on relative poverty. Because many people who receive the minimum wage are second-income workers, their households are unlikely to be poor. A home with a single income earner who earns slightly more than the minimum wage is more likely to be impoverished.

An increase in minimum wage will worsen the economic loss already experienced by many firms and their employees. While those who can maintain their employment will undoubtedly profit from the raise, many others will suffer further consequences. The enormous number of jobless people who previously worked as low-wage workers in businesses hit the hardest by the epidemic are particularly vulnerable. It’s unclear if that person will be required to return during this period. As firms balance lower revenues and increasing expenditures, adding a federally required expense in the form of a raised minimum wage would result in extended unemployment, lower work hours or hiring, and more significant layoffs for low-paid workers.

Pushing the minimum wage up to $15 an hour while simultaneously eliminating the tipping system is a terrible idea in general. Amid a pandemic with the service industry on the verge of collapse, it should be a no-brainer. Hopefully, lawmakers will delve more into the economics underlying their allegedly free lunch salary rise. Otherwise, you’ll know you’re gladly fulfilling a job previously done by someone else when you see more self-service devices in a favorite restaurant or retail store.