Question

1. Why do some firms appear to embrace the minimum wage legislation?
2. Looking at examples for minimum wage around the world, what are the likely forces driving behind this legislation? Is the minimum wage legislation tied to income per capita or income inequality?
3. The empirical evidence of the impact of minimum wage legislation on employment and local economies is mixed. In fact, studies have found, negative, positive and zero impact. Can you explain this discrepancy?
4. How do attitudes towards minimum wage legislation vary between those who are unemployed, employed with very low salaries (lower than the proposed minimum wage), employed with a good salary, and not in the labour force?

Answer 1

Why do some firms appear to embrace the minimum wage legislation?

Firms will benefit through the minimum wage legislation in the following ways:

1. It would lead to an increase in the productivity of labor as it would boost employee morale. It would improve work ethics as the workers would feel that they are receiving fair wages.

2. Minimum and ethically set wage rates approved by the law will reduce the employee turnover rate and would lead to better attrition rates.

3. Increasing the wages would reduce absenteeism as taking leaves would mean higher opportunity costs for workers.

Looking at examples for minimum wage around the world, what are the likely forces driving behind this legislation? Is the minimum wage legislation tied to income per capita or income inequality?

The main aim of setting a minimum wage rate is to protect the workers and ensure that they can afford a basic standard of living. Hence, the minimum wage rate is designed to ensure the minimum standard of living and protect the health and well being of the employees. It takes the inflation rate into consideration.

The empirical evidence of the impact of minimum wage legislation on employment and local economies is mixed. In fact, studies have found, negative, positive and zero impact. Can you explain this discrepancy?

Numerous studies and researches have been conducted on the topic- the impact of minimum wages and the results of these researches have given varying results. The most likely reason for such an outcome is that the cost shock of minimum wages is quite small relative to the firm's total cost and it is quite modest when considered from the point of view of the workers. Employers have many ways to adjust these shocks like reduction in the number of working hours, reducing the non-wage benefits like training and skill development and so on. Employers can further employ highly skilled workers and take further actions to improve the productivity of the workers. The overall impact of the implication of the minimum wage laws is thus mixed.

How do attitudes towards minimum wage legislation vary between those who are unemployed, employed with very low salaries (lower than the proposed minimum wage), employed with a good salary, and not in the labor force?

The minimum wage legislation enforces a wage floor in the economy and prevents workers from paying very low exploitative wages. The minimum wage affect the category of low paid workers and hence is welcomed by them. The employees on a good salary are hardly affected by the minimum wages. Empirical evidence has shown that minimum wage leads to lesser job creation in the economy and hence is not much welcomed by the unemployed class of workers.