Minimum Wage Impact

Introduction

Economic principle number 7 states: “Governments can sometimes improve market outcomes” (Mankiw, 2015, p. 11). Based on this principle our various government administrations apply public policies that intend to ensure key market rules are preserved to foster a successful economy and assist the disadvantaged. This paper analyzes key economic impacts of the minimum wage policy on the low-wage labor force (Mankiw, 2015).

Overview of the Minimum Wage

The first minimum wage law was enacted in the United States in 1938. The intent of this type of “price floor” (Mankiw, N., p. 117) legislation is to help low-wage workers realize a better standard of living. Several increases in the minimum wage have occurred over the years with the

In this scenario businesses may find it difficult to find affordable labor which in turn can cause many to go out of business. This may impact applicable skilled workers that lose their jobs due to business closures and, coupled with difficulty to re-skill, unemployment issues can arise.

• A legislated wage floor that is above the equilibrium wage creates less demand for workers with an excess of available workers. In essence this scenario would create high unemployment rates. An increased burden on the federal and state governments would ensue to provide the necessary unemployment benefits.

Low-wage workers tend to be teenagers seeking to make a little spending money or buy their own car. Teenagers are not considered as skilled as workers that have completed college and have employment experience. This is why they are excellent candidates for jobs paying lower wages. Research has indicated an increased minimum wage negatively impacts teenage employment preventing some from benefiting from an early employment experience

This is because the targets for the minimum wage are low-wage workers representing a small percentage of the overall workforce, typically teenagers. There are not as many jobs available in this market segment. An increase in the minimum wage can dramatically impact the availability (demand) of low-wage jobs available to this demographic. Supply in response increases creating higher levels of unemployment.

Conclusion

Theoretically speaking there are significant economic impacts of a minimum wage since the normal principles of supply and demand are circumvented. High unemployment rates could easily become a reality with an ill-advised wage floor. Everyone would agree that we should care for those that struggle financially; however, a minimum wage may not be the optimum solution. There are other subsidies or charity solutions that could be considered but care should also be taken to understand the potential adverse of these types of