The Advantages and Disadvantages of a Minimum Wage

The minimum wage is the minimum rate a worker can legally be paid (usually per hour) as opposed to wages that are determined by the forces of supply and demand in a free market. Each country sets its own minimum wage laws and regulations, and many countries have no minimum wage.
Advantages and Disadvantages:
Minimum wages may have the effect of:
• Reducing low-paid work which may be unfair and exploitative.
• Reducing the dependency of the low-paid on welfare-state benefits which may in turn reduce taxes or allow increases of other government outlays.
• Stimulating economic growth by discouraging labour-intensive industries, thereby encouraging more investment in capital and training.
• Encouraging many of those who would normally take low-wage jobs to stay in (or return to) school and thus to accumulate human capital.
On the other hand, minimum wages may have the effect of:
• Limiting employment of low-wage earners, and generally increasing unemployment.
• Raising employment barriers for people with little or no work experience or formal education: if a worker’s labour is not worth the minimum, he may not find employment at all.
• Curbing economic growth by increasing the cost of labour.
• Increasing the price of goods and services, since employers pass on employment costs in the form of higher prices. (Opponents of minimum wage often see a negative income tax e.g., as a way to support the lower waged jobs, with the money coming from those who pay taxes, not those who pay for the products including the unemployed).
• Decreasing incentive for some low-skilled workers to gain skills. The effects of minimum wage laws, both positive and negative, may be increased by ‘knock-on effects’, with increased wages for workers already earning above the minimum wage.

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