Question

In: Economics

negatives to minimun wage why against it

negatives to minimun wage why against it

Solutions

Expert Solution

Minimum wage laws require producers to pay workers a certain minimum wage and as a result it raises the costs of production for some producers, which means preventing firms from hiring lower paid employees. The employer will cut down labor because legislated hikes the labor costs and do not increase worker productivity. Employer will prefer to substitute workers with the capital. Additionally, employer will keep only skilled labor, and especially those who are the least productive will not get work, thus leading to unemployment in the economy. There is a possibility that it might not effect skilled labor as they are already well above it. It might also increase the inward migration from low-pay countries. Furthermore, due to the increase minimum wage from the original equilibrium, it will leave the employers unsatisfied since they will be losing money, and therefore they will increase the price of their goods which could result to inflation in the economy, indicating the fall in the purchasing value of money. Thus it will cause aggregate supply to shift to the left which increases the unemployment level and the price level. The result is a negative impact on the economy


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