The Effects of Minimum Wage From a Microeconomic Perspective

Effects of Minimum Wage from a Microeconomic Perspective
Name
Course
College
Tutor
March 19, 2015
Outline
1.0 Introduction ……………………………………………………………………………………….…3
Preamble………………………………………………………………..................................3
Defining Minimum wage ……………………………………………………………………...3
2.0 Effects of Minimum Wage on Businesses………………………………………….…………3-4
Increased Production Costs…………………………………………………………………..3
Reducing Profit Margins……………………………………………………………………….3
Downsizing……………………………………………………………………...………………4
Figure 1: Inelastic Demand for Labor Due To Minimum Wage…………………………...4
3.0 Effects of Minimum Wage on Local Employment…………………………………………......4-6
Decreased employment rate……………………………………………………………….…..4
Low-wage workers get hiked wages……………………………………………………...….4
Some low-wage workers lose job due to downsizing………………………………..……..5
Figure Two: Equilibrium wage where Labor Supply Curve Is Elastic…………………..…6
4.0 Effects Of Minimum Wage On Individuals………………..…………………………………….6-7
Workers experience a boost in income……………………………………………………….6
Companies may turn to automation…………………………………………….……………..6
Higher rates of unemployment ……………………………………………………..………….6
Figure Three: Importance of elasticity of demand and supply of labor……….…….……..7
Conclusion………………………………………………………………………………….………….…7
References …………………………………………………………………….....................................8
Introduction
The purpose of micro economic reforms is to help in improving the living standards by increasing the quantity of products and services that can be produced in an economy with its minimal production resources. However, in the short-run the reform could lead to decline in the usage of the production costs especially labor rather than increase the work output. Although hiking the minimum wage may seem like a tool to increase the income of the low-wage and get them out of poverty, this trend predictably hurts the very people policymakers intend to help (Withers, 2010). Once the government institutes policies to impose a higher minimum wage, the employers are confronted by the challenge of higher labor costs and this forces them to respond by decreasing other production expenses (Stephen, 2010). As the employers grapple with the increased costs of a mandated wage raise, often they are compelled to cut down on the available jobs so that they can hire less-experienced employees who are cheaper to maintain. As a result, the people who already have minimal employment options find it very difficult to get a job.
Effects of Minimum Wage on Businesses
When the government sets up policies to regulate the minimum wage small businesses that depend on unskilled labor incur extra costs since the labor costs inevitably increase. Increase in production costs leads to diminished profitability and this works again...