The economic growth and the widening gap between social classes in most developed countries increased the interest of many legislators to set a minimum wage. The minimum wage was meant to raise the living standards of the wage-earning population to cope with the rising cost of living and minimize social inequality. Regardless of the social and economic benefits of the national minimum wage, it is harmful to the economy due to its adverse impacts on employment rates and the cost of products.
The national minimum wage reduces employment rates as it raises labor costs. Many employers will resolve to minimize employees or hours of work to sustain production and therefore increase unemployment rates (Ruesga-Benito, 2017). Conversely, Dixon (2017) argues that minimum wage can reduce turnover and raise employment rates even though it will reduce profits. However, most businesses in many countries are either small or medium-scale and cannot sustain high costs of labor. Therefore, the minimum wage is harmful to the economy since it leads to higher unemployment rates that lead to low economic growth.
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Besides, the national minimum wage increases products' costs and minimizes production. According to Ruesga-Benito (2017), the high cost of production is normally passed on to the customers by increasing the cost of goods and services. On the other hand, higher income can raise the buying ability of the workers and therefore increase expenditure. However, higher prices can be unsustainable to the majority and hence reduce demand and consequently depress production and investment. Therefore, the minimum wage is harmful to the economy since it raises prices and reduces demand which adversely affects production and investment.
In summary, the national minimum wage is harmful to the economy since it leads to higher unemployment rates and higher prices. The higher production costs are passed on to the consumers, thus minimizing demand and profits. Therefore, minimum wage limits investors' ability to expand and invest in new businesses, leading to low economic growth.
References
Dixon, L. (2018, July 24). How Does the Minimum Wage Impact the Economy? Talent Economy. https://www.chieflearningofficer.com/2017/06/14/minimum-wage-impact-economy/
Ruesga-Benito, S. M., González-Laxe, F. I., & Picatoste, J. (2017). The debate on the economic effects of minimum wage legislation. European Journal of Government and Economics , 6 (2), 171–190. https://doi.org/10.17979/ejge.2017.6.2.4328
