Impact of Higher Minimum Wage Rate on Unemployment

Impact of Higher Minimum Wage Rate on Unemployment

Introduction

Minimum wage is the lowest wage which is determined by any law or agreement for a particular job while unemployment is the situation in which persons having skills and knowledge do not get job actively in the market. The situation can be measured by the unemployment rate of the region. This can be determined by dividing unemployed persons to the employed persons. The relationship between minimum wage rate and the unemployment rate is debatable. Various studies have been made in order to determine that whether the increase in the minimum wage rate cause unemployment or not. The arguments differ from country to country as there are many factors on which the result of the statement depends. In spite of the causing unemployment all economists favor that businesses show changes when there is an increase in the minimum wage rate. Policy makers always remember that the decision of increasing wage rate is not cost less someone has to bear the cost. The cost can be any form like unemployment and reduction in the efficiency of the goods.

Over the past 70 years researches have done and most of them concluded that increase in the minimum wage rate causes unemployment in the economy. The higher wage rate increases the competitive market wage levels therefore the unemployment occurs (Wilson, M, 2012). The objective behind the increasing minimum wage rate is mainly to reduce poverty and to make the high standard of living. But the increase in the minimum wage rate badly affects the lower skilled labor force, disabled people, youth and immigrants. According to a famous economist “The real tragedy of minimum wage laws is that they are supported by well-meaning groups who want to reduce poverty. But the people who are hurt most by higher minimums are the most poverty stricken.” Generally in a labor competitive market organizations hire most productive workers and due to wage distribution productivity of the workers effects. According to the basic theory of competitive market of labor the imposition of wage rate will cause unemployment. Evidences of unemployment have been coming since the implementation of the minimum wage since its earliest phase.

The labor's assessment by U.S. department in 1938 estimated that increase in 25% minimum wage resulted unemployment. Due to damaging effects of increased minimum wage rate between 2007 and 2009 in American island's named as Samo President Obama postponed the decision of increasing wage rate for the year 2011 and 2012.

In contrast ( Neumark David and Wascher William,2006) conducted a comprehensive review of more than 100 studies conducted on minimum wages since the 1990s and they concluded that there is no strong evidence of that minimum wage rate reduces employment. The other study conducted by (J. Michael, 2008) explained that there is very less effect on unemployment on higher wage rate. He collected the data and examined the effect of minimum wage rate on employment. By analysis he concluded that the impact ...