Minimum-wage Increase

The Impacts of Minimum-wage Increase on the Market Economy

Increasing the minimum wage will have significant benefits especially to the low paid workers, at equilibrium market conditions; an increase in minimal wage creates employment hence putting more money to the pockets of low earning companies resulting to increase in their purchasing power levels. It is argued that low income workers are likely to spend extra earning on affordable basic needs.

An increase in the minimum wage to $ 10 has an increase in federal budget over a given period of time whose in turn affects workers either directly or indirectly, for instance workers affected indirectly receive a boost in their earning as a result of spillover effect consequencing them to spend more on primary needs. However minimum wage increase affects the employers whose part ways with part of their profit share to compensate the wage increase (Christopher, 2011). This means shifting profits from the employer who is unlikely to spend immediately to a worker who spends immediately. Hence an increase in minimum wage increases demand for goods and services which leads to introduction of new staff in the economy by the employer.

Setting the minimum wage higher than the market equilibrium results in the reduction of labor demand by the firms and this occurs as a result of substituting some inputs to cater for the high prized labor, this reduces their annual output which in turn affects employment.

In conclusion, employees in the labor market may shy off from raising labor wage which attracts new recruits if they have to pay the high wages to their incumbent workers due to their internal equity. This is because is paid to all employees and results to a monopsony market.

References

Christopher J. Flinn. (2011). The Minimum Wage and Labor market Outcomes. MIS Press. Retrieved from https://www.labour.gov.on.ca/english/es/pubs/mwap/section_03.php

 

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