Who benefits from an increased minimum wage? It certainly isn't unskilled workers.
The over-25s rate is currently £8.21 per hour, and is set to rise to £8.67. Both major parties agree that the minimum wage should be higher; this is evident as the concept of a “National Living Wage” was first proposed by Chancellor and Conservative politician, George Osborne. However, at the last General Election, Labour pledged to increase it by considerably more if they came into power. I strongly believe that these decisions make little economic sense, and are simply cases of politicians pandering to uninformed voter bases that have not considered the consequences of a hike in minimum wage laws. In this piece, I'll argue why minimum wage laws are inherently bad for the economy, with unskilled workers being the primary victims.
Proponents of the minimum wage often argue that an increase in the minimum wage will mean that workers will no longer have to rely on government assistance. They reason that this will lower costs to the taxpayer while raising the standard of living for a large proportion of the workforce. In stark contrast, an increase in the minimum wage will increase reliance on taxpayer-funded social programmes. During Barack Obama's presidency, he proposed an increase of the US federal minimum wage from $7.25 to $10.10. However, a 2014 report by the non-partisan Congressional Budget Office found that the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent. The resultant unemployment would see their gross weekly incomes fall from $290 to nothing. This will undoubtedly place a burden on the safety net.
Another popular argument in favour of minimum wage laws is the idea that by increasing the incomes of workers, the economy would flourish, due to an increase in demand for consumer products.The premise of the argument is that workers will spend their increase in wage, thus enabling businesses to expand, resulting in an increase in workforce participation. However, the increase in demand would encourage businesses to raise their prices. This would inevitably result in the affordability of consumer goods being unaffected.
On the contrary, a major drawback of a raise in the minimum wage is the increase in labour costs for businesses. In some industries, if workers are too expensive to have, their jobs are replaced by automation; the business owner decides that the initial cost is better than having to pay high wages. However, in other industries, technology is not capable of handling the complex human tasks, so the business owner downsizes the business, or shuts down the business entirely. A 2017 paper from Dara Lee Luca and Michael Luca (Harvard Business School) found that for every 1 dollar increase in the minimum wage, the likelihood of a restaurant with a median Yelp rating exiting the market increased by 14%. It must be noted, however, that businesses with a 5-star rating were negligibly affected.
It is important to note that restaurants with a 5-star rating are significantly less likely to be small businesses. Large businesses can often handle the consequences of a hike in the minimum wage, leaving smaller businesses to be eliminated from the competition. A prominent example of this is Amazon’s decision last November to increase its US minimum wage to $15 an hour, and its UK wage to £9.50 an hour (with higher wages for workers in London). By raising their wages, they are encouraging their smaller rivals to follow suit for publicity, even if it means that those businesses are pushed out of the competition. Raises in the minimum wage are often supported by big businesses, as they attempt to squash their rivals.
A lower minimum wage would allow young people, as well as other less-experienced workers, to gain valuable experience. It would allow them to gain the valuable experience necessary to apply for higher-paying positions while providing them with a source of income in the short term. The increase in the minimum wage has forced swathes of young people out of the job market, as employers are unwilling to pay higher rates to higher unskilled workers, even if workers consent to such. Here, it becomes self-evident that minimum wage laws restrict individual choice, in addition to killing employment opportunities.
Governments should promote economic policies that are pro-business and pro-worker; but minimum wage laws are the antithesis to both.
The over-25s rate is currently £8.21 per hour, and is set to rise to £8.67. Both major parties agree that the minimum wage should be higher; this is evident as the concept of a “National Living Wage” was first proposed by Chancellor and Conservative politician, George Osborne. However, at the last General Election, Labour pledged to increase it by considerably more if they came into power. I strongly believe that these decisions make little economic sense, and are simply cases of politicians pandering to uninformed voter bases that have not considered the consequences of a hike in minimum wage laws. In this piece, I'll argue why minimum wage laws are inherently bad for the economy, with unskilled workers being the primary victims.
Proponents of the minimum wage often argue that an increase in the minimum wage will mean that workers will no longer have to rely on government assistance. They reason that this will lower costs to the taxpayer while raising the standard of living for a large proportion of the workforce. In stark contrast, an increase in the minimum wage will increase reliance on taxpayer-funded social programmes. During Barack Obama's presidency, he proposed an increase of the US federal minimum wage from $7.25 to $10.10. However, a 2014 report by the non-partisan Congressional Budget Office found that the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent. The resultant unemployment would see their gross weekly incomes fall from $290 to nothing. This will undoubtedly place a burden on the safety net.
Another popular argument in favour of minimum wage laws is the idea that by increasing the incomes of workers, the economy would flourish, due to an increase in demand for consumer products.The premise of the argument is that workers will spend their increase in wage, thus enabling businesses to expand, resulting in an increase in workforce participation. However, the increase in demand would encourage businesses to raise their prices. This would inevitably result in the affordability of consumer goods being unaffected.
On the contrary, a major drawback of a raise in the minimum wage is the increase in labour costs for businesses. In some industries, if workers are too expensive to have, their jobs are replaced by automation; the business owner decides that the initial cost is better than having to pay high wages. However, in other industries, technology is not capable of handling the complex human tasks, so the business owner downsizes the business, or shuts down the business entirely. A 2017 paper from Dara Lee Luca and Michael Luca (Harvard Business School) found that for every 1 dollar increase in the minimum wage, the likelihood of a restaurant with a median Yelp rating exiting the market increased by 14%. It must be noted, however, that businesses with a 5-star rating were negligibly affected.
It is important to note that restaurants with a 5-star rating are significantly less likely to be small businesses. Large businesses can often handle the consequences of a hike in the minimum wage, leaving smaller businesses to be eliminated from the competition. A prominent example of this is Amazon’s decision last November to increase its US minimum wage to $15 an hour, and its UK wage to £9.50 an hour (with higher wages for workers in London). By raising their wages, they are encouraging their smaller rivals to follow suit for publicity, even if it means that those businesses are pushed out of the competition. Raises in the minimum wage are often supported by big businesses, as they attempt to squash their rivals.
A lower minimum wage would allow young people, as well as other less-experienced workers, to gain valuable experience. It would allow them to gain the valuable experience necessary to apply for higher-paying positions while providing them with a source of income in the short term. The increase in the minimum wage has forced swathes of young people out of the job market, as employers are unwilling to pay higher rates to higher unskilled workers, even if workers consent to such. Here, it becomes self-evident that minimum wage laws restrict individual choice, in addition to killing employment opportunities.
Governments should promote economic policies that are pro-business and pro-worker; but minimum wage laws are the antithesis to both.
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