Many people believe that increasing the minimum wage is the answer to all our problems and supports people most in need. However, there are some important consequences to consider.
Decrease in quantity demand for labour and an increase in supply for labour
As minimum wage increases, companies will be less willing to hire employees due to the increase in price they have to pay. Simultaneously, the supply of labour will increase as people are keener to work as they will be paid more. This will cause unemployment to increase as there is a surplus in workers.
Firms replacing low-skilled jobs with capital
As minimum wage increases, it incentivises companies to invest in technology which will ultimately replace the employee they once needed. This will cause the workforce to decrease, as current jobs are being replaced by technology.
Firms will relocate to countries with lower wages
The minimum wage is different all around the world, with some countries having significantly lower wages. This can be a huge factor for companies in deciding where they should manufacture their product to get the best profit margin. So as a country increases its minimum wages, it may result in a company relocating to a different country to decrease their wages costs. This is bad for the workforce as it increases unemployment. This is because the company no longer needs the workers it once had.
Shortening hours for workers
After minimum wage increases, some companies will try and cut expenses through reducing the working hours for employees. This is disadvantageous as those employees living off the minimum wage will be working less and thus earning less money.
Although there are positives to increasing minimum wage, it is interesting to consider the consequences of its increase which is often overlooked in the media.
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