User:Lawrencekhoo/Sandbox

Debate over consequences
Various groups have great ideological, political, financial, and emotional investments in issues surrounding minimum wage laws. For example, agencies that administer the laws have a vested interest in showing that "their" laws do not create unemployment. So do labor unions, whose members' jobs are protected by minimum wage laws. The presence of these powerful groups and factors means that the debate on the issue is not always based on dispassionate analysis. Not only that, but it is extraordinarily difficult to separate the effects of minimum wage from all the other variables that affect employment.

On the other side of the issue, low-wage employers such as restaurants finance the Employment Policies Institute, which has released numerous studies opposing the minimum wage.

The following table summarizes the arguments made by those for and against minimum wage laws:


 * Arguments in favor of Minimum Wage Laws

Supporters of the minimum wage claim it has these effects:


 * Increases the standard of living for the poorest and most vulnerable class in society and raises average.
 * Motivates and encourages employee to work harder. (Contrast with welfare transfer payments.)
 * Does not have budget consequence on government. "Neither taxes nor public sector borrowing requirements rise." (Contrast with negative income taxes such as the EITC.)
 * Minimum wage is administratively simple; workers only need to report violations of wages less than minimum, minimizing a need for a large enforcement agency.
 * Stimulates consumption, by putting more money in the hands of low-income people who spend their entire paychecks.
 * Increases the work ethic of those who earn very little, as employers demand more return from the higher cost of hiring these employees.
 * Decreases the cost of government social welfare programs by increasing incomes for the lowest-paid.
 * Does not have a substantial effect on unemployment compared to most other economic factors, and so does not put any extra pressure on welfare systems.
 * A study of U.S. states showed that businesses' annual and average payrolls grow faster and employment grew at a faster rate in states with a minimum wage. The study showed a correlation, but did not claim to prove causation.
 * Historical evidence shows that at current levels, it neither hurts businesses nor reduces job creation.


 * Arguments against Minimum Wage Laws

Opponents of the minimum wage claim it has these effects:


 * As a labor market analogue of political-economic protectionism, it excludes low cost competitors from labor markets, hampers firms in reducing wage costs during trade downturns, generates various industrial-economic inefficiencies as well as unemployment, poverty, and price rises, and generally dysfunctions.
 * Hurts small business more than large business.
 * Reduces quantity demanded of workers, either through a reduction in the number of hours worked by individuals, or through a reduction in the number of jobs.
 * Reduces profit margins of business owners employing minimum wage workers, thus encouraging a move to businesses that do not employ low-skill workers.
 * Businesses try to compensate by raising the prices of the goods being sold thus causing inflation and increasing the costs of goods and services produced.
 * Does not improve the situation of those in poverty, it benefits some at the expense of the poorest and least productive.
 * Is a limit on the freedom of both employers and employees, and can result in the exclusion of certain groups from the labor force.
 * Businesses spend less on training their employees.
 * Is less effective than other methods (e.g. the Earned Income Tax Credit) at reducing poverty, and is more damaging to businesses than those other methods.
 * Discourages further education among the poor by enticing people to enter the job market.
 * Leads to the outsourcing of domestic manufacturing jobs to other countries.

Today, the International Labour Organization (ILO) and the OECD do not consider that the minimum wage can be directly linked to unemployment in countries which have suffered job losses. Although strongly opposed by both the business community and the Conservative Party when introduced in 1999, the minimum wage introduced in the UK is no longer controversial and the Conservatives reversed their opposition in 2000. A review of its effects found no discernible impact on employment levels.

Since the introduction of a national minimum wage in the UK in 1999, its effects on employment were subject to extensive research and observation by the Low Pay Commission. The Low Pay Commission found that, rather than make employees redundant, employers have reduced their rate of hiring, reduced staff hours, increased prices, and have found ways to cause current workers to be more productive (especially service companies). Neither trade unions nor employer organizations contest the minimum wage, although the latter had especially done so heavily until 1999.

Empirical studies
Economists disagree as to the measurable impact of minimum wages in the 'real world'. This disagreement usually takes the form of competing empirical tests of the elasticities of demand and supply in labor markets and the degree to which markets differ from the efficiency that models of perfect competition predict.

Economists have done empirical studies on numerous aspects of the minimum wage, prominently including:
 * Employment effects, the most frequently studied aspect
 * Effects on the distribution of wages and earnings among low-paid and higher-paid workers
 * Effects on the distribution of incomes among low-income and higher-income families
 * Effects on the skills of workers through job training and the deferring of work to acquire education
 * Effects on prices and profits

Until the mid-1990s, a strong consensus existed among economists, both conservative and liberal, that the minimum wage reduced employment, especially among younger and low-skill workers. In addition to the basic supply-demand intuition, there were a number of empirical studies that supported this view. For example, Gramlich (1976) found that many of the benefits went to higher income families, and in particular that teenagers were made worse off by the unemployment associated with the minimum wage.