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The Issue of Decreasing Job Creation with the Raise of Minimum Wage

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Minimum wage jumped from $11.60 to $14 this year in Ontario and plans to jump again to $15 per hour by 2019. This issue has led research economists and professors to collide against one another. Increasing minimum wage has both a negative and positive impact, the negative impact as mentioned by the author of source 1 is: “reduced hiring by businesses, cutting employee working hours, reduced benefits for employees and charging higher prices to consumers”. The positive impact on this view is: increased spending power for low-income workers and reduced inequality by lowering wage inequality. Based on the articles I would judge that the economic arguments in favor of higher minimum wage hold true. Ontario’s move has many precedents which prove the same.

The articles I found were authoritative sources because they looked deeper into the debate of minimum wage increase. The sources found their basis in different economic studies that were conducted at different times. Earlier empirical work strengthens beliefs and arguments in the former while modern studies prove the latter view. Both sources are biased as they take serious sides on the topic of this policy issue under study effect of minimum-wage increase. The first source contributes on how increasing the threshold at which higher minimum wage increase, rather than reduce, inequalities. The second source contributes how evidence of study supports the view that higher minimum wages are both credible and compelling.

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As stated previously there is a negative impact and a positive impact of increasing minimum wage. To emphasize more on the negative side; a decline of part-time and un-skilled jobs is one point for negative impact. Business owner can substitute low-skilled employees with high-skilled employees due to the increase of the relative price of low-skilled labor. Thus, raising minimum wage could increase the demand for skilled labor and, their wages. Skewing incentives in the workplace as non-experienced minimum-wage employees and more experienced/higher-skilled workers obtain the same pay. Employers must increase all wages to maintain a relative hierarchy of wages according to employee skill levels. Greater minimum wages result in higher labor costs, which are passed onto consumers that cause inflationary pressures. A study across OECD countries showed that minimum-wage hike begins to increase income inequality beyond a certain maximum-effectiveness level. After reaching this level, additional wages increase very high and can lead to job losses which increasing inequalities.

To emphasize more on the positive side, the notion that higher wages will result in job losses, raise consumer prices and does minimal to help low-wage workers. Many research economists now have abandoned this simple-minded image. Over two decades from now, many credible studies will find that the disemployment effects of higher minimum wages are close to zero. A formative work that arrived on this conclusion that there is no impact of higher minimum wage on employment and in some cases higher minimum wages were associated with more employment. The formative studies were: The pioneering empirical work by David Card and Alan Krueger where the study was aiming to investigate empirical data on the impacts of real-world minimum-wage increases by carefully studying the natural experiments created when one jurisdiction increased its minimum wage, but often right across a state boundary did not. Since then, many credible empirical studies confirmed that there is almost zero employment impact from minimum wages increasing moderately. Recent research in Canada, United States and Britain can conclude that increasing minimum wage can succeed.

There is no credible evidence that this policy of increasing minimum wage is lowering job creation. Minimum wage increase has the potential to lower income inequality, as more workers at the bottom of the wage distribution earn wages close to middle-class wages. This is beneficial for the economy. Following all this care must be taken to maintain minimum wage hike below the maximum effectiveness level. It would be better if the labor market took its time to increase the minimum wage (hence, increase it bit by bit each year) than to increase it by a great number fast.


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