Minimum Wages and the Economy
One of the most important debates in the modern economies relates to the
minimum wage laws. Some economists have argued strongly in favor of the
abolishment of minimum wage, although others support minimum wage
economic policies. Other economists have argued that there is a need to
increase the minimum wage. These arguments have been based on the
alleged economic effects of minimum-wage.
The article “Argument for Minimum Wages Boost,” by (Bounds, 2004)
which appeared in The Wall Street Journal argued that minimum wage is
good for the economy. The article refutes the arguments that minimum
wage laws have negative impacts on the small business and economy.
Bounds (2004), argues that the minimum wage is not a threat to the small
business because they do not constitute the low wage economy, at least
in the United States. In addition, the article indicates those small
business organizations are already paying their workers’ salaries
above the minimum wage. It made reference to several sources and
statistics that suggest that the argument against minimum wage is based
on a wrong economic calculation because what business organizations
would lose as a result of high wages will be eventually lost through
frequent recruitments. Bounds (2004) provides a comparison between
states where the federal minimum wage has prevailed with other states to
argue that minimum wage does not affect employment in small businesses,
the economy. Although the article refers to some credible sources of
data, it makes the wrong conclusions. The effects of minimum-wage on the
economy are complex. In addition, some statistics may indicate that the
small businesses are not in the minimum wage sector, the effects on
small business are evident. Economists concurred with the argument that
minimum wage cause both actual and structural unemployment in both small
and large business organizations. The article, Argument for Minimum Wage
Boost (Bounds, 2004) fails to recognize the basic fact that the labor
market and aspects of the economy follow the supply and demand rule.
From basic economic principles, an increase in the cost of labor will
cause a general decrease in demand in both small and large businesses.
Therefore, minimum wage laws may not affect small businesses short term,
but in the long term, especially where there is a need for expansion and
more staff at entry level, it may negatively affect the businesses.
Just like in other sectors, small business organizations may be limited
by minimum wage to absorb trainees and youth who earn significantly less
(David & William, 2008).
It is important to note that minimum wage is a significant factor that
hinders the establishment and growth of small business organization in
the economy. Emerging business organizations may not have the funds to
recruit highly experienced business executive. These businesses rely on
fresh graduates and interns who progressively gain experience while
earning a relatively low wage. Thus, although the article by Bounds
(2004) argues that the small business organizations are not minimum wage
employers, it is important to analyze the effects of the minimum wage on
the rate of intake of new workers. Small businesses may be paying their
workers salaries above their minimum wage, but intake of more workers is
hindered by the wage policies. Nonetheless, the effects of minimum wage
on the small businesses do not capture the effects of minimum wage in
the economy (David & William, 2008).
Bounds, G. (2004). Argument for Minimum Wage Boost, The Wall Street
Journal. Retrieved November 23 2012, from
David, N. & William, L. W. (2008) Minimum-wages, Cambridge, MA: MIT
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MINIMUM WAGES AND THE ECONOMY
Minimum Wages and the Economy