(the following article appeared in Chron)
A minimum wage is a prescribed wage level that must be met or exceeded by employers in all employment contracts, as set forth in the Fair Labor Standards Act. The minimum wage is revised from time to time to adjust for inflating prices. Microeconomics is the study of financial issues from the perspective of individual economic units, such as a single household, small business or individual. The minimum wage has a number of positive and negative effects on businesses, families and individual workers, from a microeconomics perspective.
Effects on Business
Businesses that rely to a large extent on unskilled labor
generally experience dramatic increases in wage expenses as a result of a
minimum wage, since a minimum wage virtually eliminates companies'
ability to negotiate wages for their lowest-level employees. According
to the U.S. Department of Labor, the minimum wage increased about twenty
four percent between 2007 and 2009, going from $5.85 to $7.25 per hour.
Businesses that employ unskilled labor see their profit margins
diminish and their expenses increase, presenting a challenge to their
economic growth and introducing a new variable to economic
decision-making.
Local Employment
Many companies see the minimum wage as a large expense for an
unskilled worker, which can cause them to impose stricter decision
criteria for hiring or cut back on hiring altogether. Minimum wage jobs
are often suited for young people entering the workforce for the first
time, but, according to the Employment Policy Institute, every 10
percent increase in the minimum wage causes a five to nine percent
decrease in youth employment. This can cause a situation where
individuals with little experience who might happily accept a lower wage
find themselves unable to find a job. If this trend continues in
specific regions, local unemployment could rise, possibly raising
homelessness and crime rates as well.
Effects on Individuals
Employees experience direct benefits from a minimum wage, but
there are a number of drawbacks to consider as well. The obvious benefit
to unskilled workers is the guaranteed boost in discretionary income
provided by a guaranteed wage. Highly skilled and experienced workers
experience a boost in income as well, since a raise in the lowest wage
pushes all other wages upward as well. It can be argued that the minimum
wage has never been high enough to fully support a family. According to
the U.S. Census, only around seventeen percent of minimum wage earners
are supporting families on their own. The effects of business's
reactions to the minimum wage can be detrimental to employees in the
long run as well. Companies may turn to automation or outsourcing to
control the increase in wage expenses. This could reduce the number of
jobs available in the marketplace for unskilled workers, again resulting
in higher unemployment. Younger employees can benefit greatly from the
minimum wage. Employees entering the workforce for the first time, with
no experience, can count on the minimum wage to provide them the income
they need to handle their first expenses. This, in turn, allows
heads-of-household more discretionary income to spend on family needs.
