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Definition of Minimum wage:

As the word suggests, it is the minimum legal amount an employer pays to the employee for their work. The employer cannot bypass the minimum wage act or go lower via an agreement or a contract with the employee.

What is the purpose of setting a minimum wage?

Minimum wage came into being to prevent exploitation of workers and provide enough income to take care of food, clothing, and shelter. There are two sides to the coin, though. Some believe that minimum wage can help reduce poverty, improve the standard of living, and boost the morale of the employees. While some others think it can lead to unemployment, and it can thwart opportunities for the handicapped. While minimum wage often seems sufficient for a single person, it cannot keep up with inflation, and does not support a family. Let’s explore the pros and cons.

 

Advantages of Minimum Wage
Disadvantages of Minimum wage

Better productivity and improves employee retention. 

When employees receive a wage that improves their quality of living, they are happy about the work they do, leading to better productivity at the workplace. This translates to low employee turnover rate.

Increases the unemployment rate.

When the minimum wage increases, companies have to pay more money per employee. They  cut down their labour costs by hiring fewer employees, or laying-off existing ones, to maintain their labour budget. This increases the unemployment rate, causing poverty.  It becomes difficult for companies that are labour intensive, eventually leading to a business shutdown or bankruptcy. 

Improves economic growth of the nation

With a good minimum wage, employees have more money to spend. This encourages more businesses to come up, building the economy of the country. With more money, employees can look into self improvement and education, creating an educated labour pool.

More Job Outsourcing

When companies cannot meet their labour demands because of increased minimum wages, they move to countries where the labour costs are lower.

Reduces Income Inequality

A higher minimum wage reduces income inequality while providing an incentive to work. The incentive makes it better for society than welfare or a universal basic income. 

Increased cost of living

When the wages have increased, the economic status of a region improves, leading to increased cost of living.