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Increase unemployment/ Decrease Demand for employees
With the presence of a minimum wage, firms that produce demand price elastic goods and services would have to cut down on the number of workers to sustain their profits. This means that although a greater number of people will be willing to work with a minimum wage law put in place, but the number of jobs are limited. As such, companies might eliminate lower-skilled workers.
Also, small firms and companies that are not able to afford to pay the higher costs of wages while maintaining their productivity might be forced to close down, thus resulting in more people losing their jobs. |
Decrease in competitivenessAs the cost of production of local goods increases due to higher costs of wages, price of goods and services will increase, especially those that are demand price inelastic. As such, foreign competitors who sell the same goods at lower prices will have an edge over local goods, causing the market for local goods to worsen.
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