SHOULD THE MINIMUM WAGE BE ABOLISHED

Running head: SHOULD THE MINIMUM WAGE BE ABOLISHED1
Performance-Based Pay: Should the Minimum Wage be abolished?
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SHOULD THE MINIMUM WAGE BE ABOLISHED2
Performance-Based Pay: Should the Minimum Wage be abolished?
Over time, economists have been researching on the necessity and effects of the
minimum wage on peoples’ lives. Itis the amount of compensation imposed by the federal
government since 1938 below which laborers should not sell their services and this amount has
increased with time. Its primary aim is to tackle poverty and improve standards of living by
ensuring every worker enjoys a minimum level of income (Mark, 2012). However, some
policymakers state that this policy is inefficient since it negatively affects more people than it
benefits (Robert, 1974). This paper focuses on the positive and negative effects of the minimum
wage and whether the government should abolish it.
Although the minimum wage is a way of eradicating poverty, it has adverse effects on the
very low-income workers, and policymakers intend to help. According to neoclassical
economics, employers demand less labor as its price increases (Ferguson, 1970). When the
minimum wage increases, businesses face high production costs, forcing them to respond to this
new expense. They offset this cost by minimizing the number of employees, reducing worker
benefits and training, increasing purchase prices and being more selective when hiring. This
action raises the unemployment rate, creating job competition among skilled and unskilled
employees. As a result, individuals whose productivity falls below the minimum wage find it
challenging getting new employment opportunities. (Randall &, Daniel, 1996).
David and William state that the imposed minimum wage mainly affects the market for
teenage labor (1995). The equilibrium wages for this group remains low since young people are
among the least experienced and least skilled members of the labor market. Most youths are also
willing to trade low wages or no pay for job training. Abolishing the minimum wage can lower
labor costs in competitive markets hereby motivating entrepreneurs to set up new firms. The 
SHOULD THE MINIMUM WAGE BE ABOLISHED3
most disadvantaged individuals such as ethnic minorities, low-skilled workers and youths would
easily find low-paying job opportunities and become more skilled and accepted by the society.
After gaining experience, this group would later come up with new businesses, creating more job
opportunities for other people.
However, Laura (2013) argues that the demand for low-wage labor is always inelastic,
meaning that the minimum wage has little or no effect on the level of employment. This study
also shows that in a monopsony market (many sellers and one buyer), a minimum wage above
the equilibrium wage increases employment. This set compensation also gives unemployed
individuals incentives to search for jobs, for they are aware of what their minimum pay will be.
This action, in turn, reduces employee turnover and increases their productivity, thereby boosting
the economy as a whole. Moreover, minimum wage jobs allow workers to gain skills and
experience, increasing their professionalism and competitiveness in the market.
In conclusion, opponents of this policy maintain that the minimum wage increases
unemployment, poverty and labor costs. Supporters stress that it gives businesses a chance to
hire high-skilled labor and boosts employee morale. It is evident that this policy has more
adverse effects than benefits. Based on the above augment, the government should abolish the
minimum wage. 
SHOULD THE MINIMUM WAGE BE ABOLISHED4
References
David, N., & William, W. (1995). The Effects of Minimum Wages on Teenage Employment
and Enrollment: Evidence from Matched CPS Surveys. Cambridge, MA: National Bureau
for Economic Research
Ferguson, C. E. (1970). The Neoclassical Theory of Production and Distribution.The Economic
Journal, 80(318), 336-339
Laura, G. (2013). Minimum wage effects on employment, substitution, and the teenage labor
supply: Evidence from personnel data. Journal of Labor Economics,31(1), 155–194
Mark, W. (2012). Policy Analysis: The Negative Effects of Minimum Wage laws. Retrieved 19
August 2015 from http\\www.object.cato.org/pubs/pas/PA701.pdf
Randall, K., & Daniel, S. (1996). The Economics of Work and Pay. New York: HarperCollins
Robert, S. (1974). The Policy Content of Quantitative Minimum Wage Research: Proceedings of
the Industrial Relations Research Association, 27th Annual Meeting, San Francisco