Minimum wage laws can stifle small businesses. Increases in minimum wage definitely affect labor costs for small businesses. The disadvantages of minimum wage include the fact that it will not help entrepreneurs stay afloat during difficult economic times.
Not only that, entrepreneurs also face rising costs of workers' compensation premiums, unemployment insurance and health care. The mandatory wage increase could back some businesses to the wall and force them to reduce their workforce or freeze hiring new personnel.
The question of whether continual increases in the minimum wage can help the poor is widely disputed. Some low-wage earners may indeed find increases in income a boon but a number of other employees are laid off in the process.
Knowing the real impacts of increases in minimum wage is essential. A constant rise of minimum wage could have detrimental effects on both workers and entrepreneurs. These are some of the disadvantages of minimum wage:
First, most minimum wage workers use the money for supplement. Most of the earners are teenagers and college students or part time workers living with a full-time wage earner. Increases in minimum wage, however, often find these workers laid off by employers intent on keeping costs to a minimum.
Second, the minimum wage is not intended to feed a family. There are state, national and private social programs to cater to those who need financial support. Disadvantages in minimum wage increases include reduction of entry-level jobs which do not help poor families at all.
Third, income mobility is a part of the American economic system. Through hard work, savings and investment most poor families are able to elevate their standard of living. A study made by University of Michigan called the Panel Study of Income Dynamics (PSID) collected data from fifty thousand Americans since 1968. The people which comprised the bottom quintile, or the bottom fifth, in 1975 were reduced to only 5 percent in 1991. Therefore, 95 percent of the people who were in the lowest income bracket in the past had moved upward. This reveals that the greatest gains in income come from those in the lowest income bracket.
And finally, the health of the US economy, and small businesses in particular, requires that government regulations do not artificially increase the cost of entry-level labor. Every increase in the cost of hiring low-wage workers provides a reason to employers not to hire or instead, buy new equipment in lieu of hiring like purchasing bookkeeping software instead of hiring a real bookkeeper.
These are the disadvantages of minimum wage and the reasons why increasing the wage does not help low-income families and stifles the growth of the economy. A reasonable wage floor is a good policy but continuous increase could dampen the benefits it has reaped.
Recommended alternatives to increases in minimum wage in order to ease up the burdens of entrepreneurs include the following:
• Temporarily suspend minimum wage increases during a recession. Once the economy is doing well, wage increases could be implemented again. The idea here is that receiving low pay is better than no pay at all, especially in tough times.
• Another is, if minimum wage increase is necessary then entrepreneurs should be allowed to enjoy increases in their income through tax cuts. Tax reliefs for small businesses would be crucial in easing the effects of minimum wage increases.
If employees receive raises then businesses should be given necessary boosts or respite by the government to ensure their continuous operations. What is beneficial to both employees and employers should be taken into consideration in order to minimize the disadvantages of minimum wage increases.