Boston University defines minimum wage as, "the lowest level of earnings for employees set by government legislation. " In general there are two fiscal and social arguments on the minimum wage. Supply side economists see a minimum wage as an overreaching burden placed on small businesses while demand side economists argue wages set too low will result in higher levels of poverty. In this article I bring out some of the main intellectual concerns of the minimum wage.
My goal for this article is not to criticise nor applaud the introduction of a minimum wage in Zambia, but to provide information to you the reader and let you have the conclusive remarks about the issue at hand. Firstly I look at affects small business, the minimum wage directly affects small businesses because a large amount of their earnings go directly to pay for operating expenses, such as equipment, supplies, lease or mortgage, credit lines, inventory, employee wages and benefits.
The single largest cost to small businesses is the latter; employee wages and benefits are some of the few costs that can be controlled. However, if a higher minimum wage is enacted, they must hire fewer employees or downsize to comply with the minimum wage law, which has a direct impact on unemployment rates. Poverty Research conducted by the Heritage Foundation in 2003 found that raising the minimum wage would not curtail poverty levels because employers will cut their workforce to comply with the minimum wage.
The number of people left in employment, translates to a slight increase in consumer spending but does not positively impact poverty levels. Labour Markets Labour is a commodity and therefore is subjected to market forces. If the minimum wage is increased by the government, more skilled and educated workers will also seek pay increases as persons that are unskilled and not as educated are awarded a higher wage not because of market forces, but government policy.
This increases volatility in the labour markets as experienced and skilled workers are forced to reassess their value upward, which may not be accepted by employers. If you take a look at the Zambian households today most of them have in the resent past few years been able to employ at least two domestic workers. Now with the introduction of the minimum wage we will likely see fewer households that will be able to afford having a domestic worker.