There are some arrangements for minimum wages in various countries of the world where you can observe significant effects of raising minimum wage on economy. That’s why policymakers in those countries often contend that the income of labor with low-earnings can be increased through a minimum escalation in their wages.
It can be utilized as a key tool for reducing inequality and poverty in the country. Similarly, some policymakers also stress the vitality of raising wages for enhancing the productivity of workers. They believe that this initiative may lead to decreasing job turnovers, increased on-the-job training, and worker effort.
Various studies have also revealed the importance of raising the minimum wage for the economy of any country. According to those studies raise in workers’ minimum wages avoid commensurate and raises the productivity of labor that could ultimately result in job losses. However, the key reason provided to support this disagreement is the low-wages or poor workers.
Interestingly, when the wages are increased for low-income workers, they could not get an advantage from this policy. Similarly, they are probably dismissed from their formal employment since these workers are generally low in productivity and have inadequate skills. So, they are inclined to be laid off in the first stand whenever an increase is made in their minimum wages.
Even though the concept of increasing the minimum wage is commendable and noble but most of such arguments are based on either inattention of economic ramifications and raw emotion. The effect of raising the minimum wage on the economy may be adverse particularly on the people it was supposed to help.
As you have learned that increase in the minimum wage has various negative and severe but unintended consequences. Employers, specifically mid or small-size enterprises will be unduly upset because of this additional cost incurred. The local businesses and neighborhood stores that usually earn razor-thin profits are the main victims.
These businesses and stores will be enforced to increase prices for raising profits so that they can bear such extra labor costs. The consequences of increased prices will worsen further for the owners because customers mostly price sensitive. Thereby, by increasing prices, they will lose their customers who prefer to switch to other options with the least prices.
For any business losing a customer means a significant loss in income, which ultimately leads the business to dismiss its workers. The consequences in the large-scale organization are a bit different as these big-budget firms weigh the technological investment with its prospecting benefits and the augmented labor costs with its consequences.
Off course technology mostly replace human so such firms for sure would like to invest in IT and infrastructure rather than labor force. Thus, these firms more likely to displace their workers.
Soon this inclination will become dominant even in the manufacturing, retail, food, construction, hospitality, and service industry. Recently, Amazon has inaugurated many prototype stores such as Amazon Go.
This store proclaims itself as a store of its kind that features the most innovative technology for shopping in the world. In these stores, you will not require to make lines, or to checkout. All you need is to grab what you want and go.
Following the trend, big departmental stores and fast-food chains have also implemented and trailed the self-service checkout suit to reduce operational costs. Top management and executives of the firm will identify following this suit at least $15/hour can be raised regularly.
They will for sure, weigh the unknown future costs related to supplementary increases, also with the always escalating insurance costs, time invested in acquiring the right employees, time and effort consumed for training them, and the deals made for turnover.
Consequently, they will find it less expensive and convenient to go for investing in technology instead of investing in workers. Therefore, the unintended consequences of raising the minimum wage on the economy will be in the shape of fewer job opportunities available for job seekers.
In A Nut Shell
The effects of raising the minimum wage on the economy sound healthy for the people with low-income. However, when you dig down to explore the extended effect this initiative would have on low-income workers you may get disappointed.
An increase in the wages of low-income workers will haunt those workers in the long run. That’s the reason many business executives and economists do not support such initiatives by the government.
The labor costs have already been pointed out by various executives and economists as the major cost preventing from doing businesses. This argument has already led firms to go for low-wages labor or to downsize labor for maintaining their profitability ratios.
Any increase in wages of low-income workers will enforce these firms to dismiss their workers for maintaining their profitability. According to the estimation of CBO 2019, raising a $15/hour increase in minimum wage will lead to the reduction of 1.3m jobs approx. by 2025.
Moreover, a substantial increase is also expected in the trend of downsizing by companies shifting to outsourcing concepts to reducing labor costs.