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Minimum Wage: A Bad Economic Policy

People often talk about minimum wage laws as if they resulted in people getting more
money, but they are not subsidies. Minimum wage supporters claim that people have to
come before profits, and point to increasing living costs behind the need for higher
wages. What those lobbyists do not realize is that so many small businesses operate
with razor-thin profits to begin with. Increases in wages will be compensated for

The most often cited is that, above a certain level, it does more harm than good to the
very people it is intended to help, by increasing unemployment. Companies only hire
people when it is profitable to do so, so if the minimum wage is P500 an hour and you
are only worth P400 an hour to a company, then that company is not going to hire you. 
Then it makes it impossible for thin profit-margin businesses, which rely on low labor
costs to operate where such a law raises their costs beyond their possible profits. There
are a lot of things that a small company can do to do avoid hiring people. They have to
automate, outsourcing to other countries, move, or shut down.

Increasing the minimum wage also leads to higher prices of all goods & services
produced by such labor. Let say if an owner ran a fast food, paid P400 per hour, and
increased the labor costs to P500, the owner will either fire people or have to jack up
prices (or both) in order to keep his doors open unless he could find a way to offset
prices. This disproportionately affects the poorest, especially if they are the ones put out
of work by minimum wage law.

And of course, it makes unemployable all people whose labor is not worth the minimum
wage. This includes untrained, unskilled or low-skill entry-level workers who are just
getting their first jobs like the teenagers. Unemployment traps this discriminated group
who can't prove their employability and suffer the most from gaps in their employment

The point here is not certainly to keep working in a below-minimum wage job
forever, but for people to use it as a stepping-stone to demonstrate their ability to hold
down a job, or be a worthy addition to the new company they are aiming to get
employed. In reality, if you want workers to earn more money, they need to be
educated/trained to do more valuable work.

If the minimum wage is increased dramatically, another coping mechanism of
companies is severely constricting cash flow, which includes defunding research and
development as well as fewer economic transactions. Next would be fewer benefits (like
healthcare) and worse working conditions, for instance, reducing on-the-job training and
re-classifying employees as part time.

So we see, companies that are forced to pay their low-skilled employees a premium are
faced with few options: drive up prices, reduce employee hours or cut some of the
services they provide. It is an unending cycle of making the cost of living more
expensive and putting unskilled workers out of a job.


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