Macroeconomics: Minimum Wage - Research Paper Example

According to the supporters of the policy, minimum wage improves standard of living of workers, reduces inequality and poverty, improves morale and makes businesses to be efficient. On the other hand, opponents argue that minimum wage increases poverty and unemployment as well as causing damage to businesses. This paper seeks to develop five economic implications that minimum wage has on the environment, global operations, nationally or locally. According to the supply side economists, the major opponents, minimum wage has negative implications at small businesses in local places as well as in urban areas.

Their argument is that minimum wage directly affects the operations of small businesses since large amount of their earnings goes directly to pay their operating expenses. This entails purchasing of equipments, lease and mortgage, credit lines, employees wages and inventory among other expenses. For the small businesses the single major costs are the workers’ wages and benefits. Additionally, this cost cannot be controlled. By initiating a higher minimum, the business must hire fewer employees or reduce the number of workers as a way of complying with the minimum wage law.

This results to increased rate of unemployment. Based on the positive impact of small businesses in the national economy for example in absorbing the unemployed individuals, minimum wage may thus affect the development of a country through reduction real GDP. According to research that was done by Heritage Foundation in 2003, increasing minimum wage would not reduce poverty level. This is based on the fact that there are few people who are employed full time and earn minimum wage. For example, the foundation noted that 75% of the employees who earn minimum wage are part time workers (The Economic Journal).

They do not significantly rely on their income to improve their living standards resulting to increased consumer spending but little impact on poverty