By: MUHAMMAD ASAD RASHID
It is no secret that in today’s day and age,one of the primary concerns of any government, particularly of a developing country, is poverty. The Oxford Learner’s Dictionary defines poverty as, “the state of being poor; that is,lacking the basic needs of life such as food,health,education and shelter”(Oxford,2025).In order to combat this rising issue,many governments have employed the use of minimum wage,which is defined as, “the minimum sum payable to a worker for work performed or services rendered, within a given period, whether calculated on the basis of time or output, which may not be reduced either by individual or collective agreement, which is guaranteed by law and which may be fixed in such a way as to cover the minimum needs of the worker and his or her family, in the light of national economic and social condition”(ILO, 2013).Put simply,it is the amount of wage that has to be paid by an employer to an employee ,as per the law,on the amount of work done.The main aim of this law was to reduce the income gap between those financially well off and those struggling by setting a, “wage bar”,which would not allow one’s wage to fall below it,with the hopes of it alleviating poverty.Proponents of minimum wage support this law and firmly believe that it serves its purpose ,in terms of reducing poverty and helps to stimulate economic growth.However,those opposed argue that it not only results in potential job losses,but leads to rising businesses being forced to shut down.All things considered,I believe it is imperative to analyse both sides of the coin.
To begin with,when speaking of the benefits of minimum wage,one of the first thoughts that comes to mind is that it will help to reduce poverty.Since the introduction of minimum wage in Malaysia in 2012,an article co-written by M.Yusof Saari,M.Affan Abdul Rahman,Azman Hassan and Muzafar Shah Habibullah states that incomes of those below the poverty line have increased significantly,ranging from 2.7 percent to as high as 16.9 percent,with it mainly positively impacting the Chinese and Indian ethnicities and hence reducing poverty as a whole in the
economy(Saari,Rahman,Hassan,2016).They further ahead say that ,based on the scenario presented,the expected reduction of poverty in specific ethnic groups ranges from 1.1 percent to as high as 7.6 percent,showing the staggering affect minimum wage can have on poverty(ibid).The article was published in a journal called Economies Modelling,which is a non-governmental, organisation,globally recognised for its authenticity and thoughtful insights on macroeconomic issues,with some of its hypothetical policies presented being used by the Bank of England,reconfirming its credibility and reliability.The main author of the article,M.Yusof Saari,is from the faculty of Economics at the University of Putra,based in Malaysia ,which hence enhances the authenticity of the findings presented as the author is well versed on the matter and present at the location mentioned to see the desired effects of the law implemented.The article also follows a balanced approach,citing both the positives and negatives of the introduction of minimum wage,which is imperative for any article in order to show no vested interest.However,the figures presented for the expected reduction of poverty are scenario-based and are based on some assumptions that some factors which usually are not constant,in this case are , such as change in consumer expenditure as a result of minimum wage being introduced, so one must proceed with caution.An article from the International Review of Financial Analysis about the effects of the introduction of minimum wage in China further corroborates this point by stating that, “appropriate minimum wage system plays a positive role in achieving balance between poverty alleviation and economic growth,”(Wang,Lin,Huang,Lu,2023).
Furthermore,another potential benefit of introducing a minimum wage is that it could stimulate economic growth in a country.An article published in the Chicago Fed Letter states that a federal minimum wage hike could potentially result in a boost in real income and spending of households(Aaronson and French,2013).The writer’s further ahead say that a, “$1.75 hike in the hourly federal minimum wage could increase the level of real gross domestic product (GDP) by up to 0.3 percentage points”,(ibid),as a rise in income levels will increase the purchasing power of those relying on minimum wage,and applying the laws of demand and supply,it can be noted that as demand increases,supply also increases,which is reflected in the increased gross domestic product,and further increases economic growth,as both are interlinked.The article itself maintains a neutral stance,due to it being a publication of the federal bank of
Chicago,which helps to increase the authenticity and reliability of the evidence provided in the article.The article,although published in 2013,is still relevant today in terms of understanding the economic effects of minimum wage policies,as the argument itself is not affected by inflation or time.This argument is corroborated by a study by the Center of Economic Policy and Research which states that between 1948 and 1968, the real value of the U.S. federal minimum wage increased by 170% and during this same period, the U.S. economy experienced robust growth, averaging 4.0% annually,highlighting the key role minimum wage plays towards economic growth.(CEPR,2013)
On the other hand,an argument against it is that it could result in potential job losses.In an article published on the Federal Bank of San Francisco website,the author argues that increasing labour costs,as a result of increasing minimum wage,can result in reduced demand for labour,potentially leading to unemployment(Newmark,2015).The claim is supported by studies indicating that higher minimum wages can lead to job losses, particularly in low-skilled sectors(Newmark,2015). For instance, a 2015 survey by the San Francisco Federal Reserve concluded that nearly two-thirds of the more than 100 newer minimum wage studies found consistent evidence of job loss effects on lowskilled workers,such as teenagers as “10 percent increase in wage floor leads to a reduction in ten employment by 1 percent”(Newmark,2015).The source, San Francisco Federal Reserve,is a reputable institution known for its economic research and is recognised globally for its authentic research making it a credible source.The article is published in December 2015,which although is relatively recent, factors such as inflation and living rates have changed drastically which may have hindered the authenticity of the statistics provided in the article.The argument focuses on the potential negative impact on employment without considering potential positives, such as increased worker productivity ,which again does hinder the reliability of the information provided in the article as it creates a sense of vested interest.However the author,David Newmark,is a well-known economist,with a PHd in Economics and prior to the article,he conducted multiple studies on the topic which further strengthens the authenticity and reliability of the evidence provided.Thus,it can be concluded that the introduction of minimum wage could result in potential job losses,primarily those with low skills.
Moreover,another crucial aspect to consider is that it could negatively impact small businesses.It is argued that , “increasing the minimum wage could lead to higher labor costs and reduced profits for small businesses”(Forbes,2021),with an independent study from the Oxford University Centre for Business Taxation confirming that , “ minimum wage does affect the number of small businesses operating in an exposed industry.”(Oxford,2024).Their logical reasoning appears to be sound-since the increased production costs of a firm as a result of wages,if they were paying under the minimum wage line introduced,it may cause an added burden on firms,especially small businesses,and if their profit margins are already low,this introduction may cause the firm to shut down.The closure of these businesses will definitely result in the gross domestic product of the country to shrink,as key sectors or revenue-generating firms shut down,resulting in a harmful effect on the economy as a whole.The 2024 study by the Oxford University Centre for Business Taxation, conducted by Rao and Risch, reveals that minimum wage increases can lead to small business closures. Analyzing U.S. tax data over a decade, the study finds that independent businesses, particularly in sectors like retail and hospitality, experience a 7% rise in wage bills after minimum wage hikes(Oxford,2024). While some firms offset higher labor costs through increased revenues, the study notes that approximately 1.5% of less productive firms exit the market following wage increases(Oxford,2024).Though this seems like a small number,on a macroeconomic scale this could be thousands of firms .This suggests that higher minimum wages can strain small businesses, potentially leading to closures and job losses. The evidence underscores the need for policymakers to consider the potential adverse effects of wage hikes on small enterprises. The article’s argument is further accredited by an article on the IRLE,a research publication site for those at the University of Berkeley,which states that there is some unemployment and some firms do shut down due to increased wages,primarily due to the introduction of minimum wage(Wursten and Reich,2023).
In conclusion,the introduction of minimum wages has both positives and negatives,to citizens,businesses and countries as a whole.A benefit of minimum wage is the reduction of poverty.Furthermore,another positive is the stimulation of economic growth which could lead to better living standards and the country flourishing as a whole.On the contrary,one of the disadvantages of it is that it could lead to potential job losses,especially those unskilled, due to larger firms having to downsize in order to maintain profit margins.Side by side,this policy could also lead to small businesses being forced to shut down due to rising wage costs,resulting in not just unemployment,but key sectors being shut down which are important for the country’s output,harming the economy as a whole.
Before writing this essay,I felt that the implementation of a minimum wage was a necessity for any economy,especially developing countries,where poverty is at its paramount.While this is true to a certain extent,after researching on the matter,I have come to the conclusion that minimum wage is not an effective policy.I have come to this consensus as I believe that the idea of minimum wage is flawed-it does risk firms downsizing resulting in more unemployment and hence more poverty as people will not have incomes to fall upon in order to pay their bills.In Pakistan,for example,a study by ILO confirms that increased minimum wage did cause job losses(ILO,2016)Additionally,the rising wage costs may cause small businesses to shut down as a result of this added burden,resulting in not just increased unemployment,but key sectors for economic growth and gross domestic product being shut down,which defeats the purpose of introducing minimum wage in the first place. I found that during my research,one key element that was lacking in the majority of the studies was the consideration of changing inflation rates and broader economic conditions. For instance, in Greece, despite a 35% increase in the minimum wage to €880, workers have protested that inflation in essentials like food and housing has outpaced wage growth, leading to real income declining(Koutantou and Prousalis,2025). This example underscores the importance of calibrating minimum wage policies to economic conditions,and if adjusted properly enough,it could result in a change in my viewpoint.
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