Question

State and explain any two (2) favorable or unfavorable effects of a relatively large increase in the minimum wage on demand or supply for goods and services in your city or state should the legislature in your state increase the minimum wage by say 60 percent.

Answer 1

If there is relatively large increase in the minimum wage, number of people who wish to work at this level of wage will increase sharply due to the favourable inducement of wage(labour price). This is not a very favourable picture as the demand for labour will be reduced because business owners and organizations will be less willing to hire at higher wage and would try to automate the earlier manual tasks due to rising cost of labour. This will be most significantly visible in the unorganized and unskilled or semi-skilled sector. This will lead to an increase in the unemployment levels.

Minimum wage can also be favourable for curbing the inequality in the society only if a significant number of organizations are ready to support this but a steep increase will make it unlikely. If still people are hired at such wage levels, it will be accompanied with inflation in prices. It will be counterproductive to the poor class as their new found disposable income will have its value significantly reduced. Targetted Tax credits can be a much better way of achieving these goals rather then any increment in minimum wage.