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Does a minimum wage kill jobs?

The Union Cabinet is expected to approve a bill that mandates a universal minimum wage. There is an ongoing debate around the impact of minimum wages, and how it can lead to a reduction in number of jobs.

What is the importance of a minimum wage:

  • Minimum wages would help the poor, unskilled workers to earn more.
  • They are important in our country as we have surplus of labour, thus there are too many jobs where labour don’t have the bargaining power to demand a wage sufficient to survive on.
  • Conditions where employers get away with paying workers too little generate several social costs, such as poverty, malnutrition, endemic debt leading to bonded labour, and child labour, which could be avoided through minimum wages.
  • Thus, minimum wages are an important tool of poverty alleviation

Issues with minimum wages:

  • Economists, however, have warned for long that price floors prevent the available supply of goods from being fully sold. So, the minimum wage would logically hurt workers by increasing unemployment.
    • But this has been opposed by other economists, who argue that the negative impact of a minimum wage on employment is almost negligible
    • There is evidence to suggest that unemployment decreases in some regions, and increases in others due to minimum wages
  • It can be argued that the minimum wage increases unemployment, except when it is set below the market price for labour
  • It can also lead to other negative effects on employment, for example instead of firing workers, companies may employ them for fewer hours, which in turn would affect the quality of their services
  • Minimum wages would lead to an increase in labour cost, thus it can negatively impact the Make in India campaign

Way forward:

  • The government should remove the distinction between contractual and permanent labour when it comes to minimum wages, because this may lead the industry to shift towards contractual workers
  • Even though minimum wages are criticized, they are important for a developing country like India which has a surplus of labour
  • But the minimum wages should be fixed by keeping in mind that if labour costs increase significantly, it may lead to a stagnation of economy

 

Read 811 times Last modified on Tuesday, 25 July 2017 13:57

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