Figure 2: Cartoon 1 showing effects of minimum wage
Figure 3: Cartoon 2 showing effects of minimum wage
Wages are one of the biggest expenses for many businesses. As such, one of the main arguments against having a minimum wage system in place, is potential job losses and layoffs. (Mikayla Novak:2015) If businesses are tight on money and the minimum wage was increased, then these businesses potentially can “no longer compensate the same number of employees at a higher rate and must make layoffs to remain within budget”. (Chad Halvorson:2014) The employers would then become discouraged at the prospect of hiring any more local employees. According to a Federal Reserve Bank of Chicago study, a “10 percent increase in the minimum wage, lowers low skill employment by 2 to 4 percent and total restaurant employment by 1 to 3 percent”. (Chad Halvorson:2014) The higher minimum wages in developed countries have resulting in companies moving part of their business to other countries where this does not apply to save reduce their business costs. “For decades "outsourcing" jobs from wealthy developed countries to low-wage developing countries has been a major strategy of many corporations, industries and businesses to increase profits by reducing labor costs and operating expenses.” (Joseph Chamie, 2016) A flow on effects of this is that it may push qualified individuals to minimum wage jobs, which will stop the younger, inexperienced generation from getting any jobs, “robbing their opportunity to gain experience and knowledge to build a resume for themselves and enter the workforce”. (Chad Halvorson:2014) Another argument is that the price of the products will also be forced to increase in a need to generate more income to compensate for higher labour costs. This will cause a “ripple effect for other shops and industries, resulting in a slightly higher cost of living, resulting in another push to raise minimum wage again.” (Chad Halvorson: 2014)
In America, President Obama proposed to increase minimum wages to help the poor who have been suffering in the tough economic times. However a Research published by economists Joseph Sabia and Richard Burkhauser in 2010 concluded that “if the federal minimum wage were increased from $7.25 an hour to $9.50 an hour, only 11.3% of workers who would gain from the increase belong to poor households.” (Kevin A. Hasset and Michael R. Strain:2013) This is because the vast majority of people living in poverty are unemployed, thus making the increase in minimum wage useless and ineffective. It is also important to consider that the increase in the minimum wage won’t only not help people in poverty, but also teenagers. The unemployment rate for “African American teenagers stands at a staggeringly high 43.1%. For white teenagers, the unemployment rate is 22.1%; a little more than 11% of workers older than 25 and without a high school diploma are unemployed.” (Kevin A. Hasset and Michael R. Strain:2013) This proves that if these statistics were similar to people living in Australia, then having the high minimum wage that Australian does, has no effect the lower class citizens. Despite these arguments against increasing the minimum wages there are also counter-arguments to support it.