Question

Please describe in detail why the minimum wage should not be raised from an economic standpoint.

Answer 1

The minimum wages should not be raised as it leads to an increase in costs of production of the firms. As the costs of input increases, the firms will try to decrease their cost of production by hiring fewer workers.

Also, an increase in minimum wage will lead to firms hiring only high skilled workers so, the demand for low skill workers will decrease which increases unemployment.

As there exist an excess supply of workers at a higher wage, the labor market will be negatively impacted where fewer workers will be employed than before. The increase in costs of production will also be passed to the consumers as the firms will increase the price of goods so the price level increases. This will increase the inefficiency in the market and total welfare falls.