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The effects of minimum wage on businesses

2013-05-18   Views:1

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Minimum wage was established as part of the 1938 Fair Labor Standards Act in the United States. The intention of the federal minimum wage program was to institute a minimum income level that businesses could pay employees to do work, based on minimal

Minimum wage was established as part of the 1938 Fair Labor Standards Act in the United States. The intention of the federal minimum wage program was to institute a minimum income level that businesses could pay employees to do work, based on minimal standards of living and decency with regard to employee treatment. While often debated, minimum wages do have some effects on businesses.

Job Losses

The biggest argument by those who have opposed periodic increases to the federal minimum wage is the notion that mandatory wage increases actually lead to job cuts, according to Jared Bernstein in his April 29, 2004, testimony before the U.S. House Subcommittee on Workforce Empowerment and Government Programs. Bernstein goes on to cite research that suggests this may not be the case, but businesses argue that forced wage increases causes them to cut jobs or avoid hiring new employees. This, in effect, would actually harm the lower-level workers that minimum wage standards are intended to help. The U.S. Employment Policies Institute argues that a research study conducted between 1979 and 2004 shows that "a 10 per cent increase in the minimum wage is associated with a 0.9 to 1.1 per cent decline in retail employment and a 0.8 to 1.2 per cent reduction in small business employment."

Lower Demand for Unskilled Workers

An affordable minimum wage makes it possible for small businesses to offer jobs to young workers and unskilled workers, according to Paul Kersey, in his May 3, 2004, article "The Economic Effects of the Minimum Wage", published for The Heritage Foundation. He cites research that shows that unskilled workers, once hired, can often develop skills over time to take on higher paying, more skilled positions. He also points out that businesses turn to machinery, cut services offered or combine jobs to avoid the expense of hiring unskilled workers when minimum wages increase.

Price Increases

As is often the case with business expense increases, small businesses tend to pass on risings costs to customers through rate increases on products and services. Some employers cite natural inflation and the need for upward price adjustments as a correlation to the need for increased wage for lower income workers. Often, businesses can add costs to luxury services, or spread them across products and services to create a negligible effect on the business and customers.

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