Disadvantages of Minimum Wages

Disadvantages of Minimum wages

minwage

A minimum wages can cause cost push inflation. This is because firms face an increase in costs which are likely to be passed on to consumers. This is even more likely if wage differentials are maintained.
A minimum wage may increase the number of people working on the black market.
A limitation of the minimum wage is that it doesn’t increase the incomes of the lowest income groups. This is because the poorest have to rely on benefits and are therefore not effected by the minimum wages.
Also many who benefit from the min wage are second income earners and therefore the household is unlikely to be below the poverty line. A household with a single income earner just above the min wage is likely to be relatively poorer.

The effect of a min wage on unemployment is uncertain, the structure of the labour market is very important.
Empirical evidence from the US and the UK suggests that a moderate increase in the min wage doesn’t cause a fall in employment. Therefore the key question is how high the min wage can rise before causing unemployment.
The effect on wage differentials is important. For example skilled workers just above the min wage may feel they deserve more. However there doesn’t appear to have been much of a knock on effect.
There may be a good case for a regional minimum wage because wages tend to be lower in the north than the south. In London very few workers benefit from the minimum wage and in this region the Min wage could increase.

Flexible Labour Markets

Minimum Wages