INTRODUCTION AND DEFINITION OF MINIMUM WAGE

The concept of minimum wage has been an age long economic debate that has broadened economists’ horizon into examining both its costs and benefits. The whole concept behind minimum wage basically deals with how the welfare of workers in a country, state or geographical region can best be improved upon. Since the premiere of the industrial revolution which dates back to the early 19^th century in England, minimum wage has become an increasingly open and popular debate. However, this definition has faced stiff opposition from activist who clamor for a minimum wage bracket. From a broader perspective, some critics of the minimum wage concept has proposed that instead of increasing the wages that workers receive, the employers should be more concerned about improving their welfare. This has been narrowed down to include their place of abode, their feeding, health insurance and other benefits that are not included as part of employees’ income. The proponents of employees’ welfare have a strong belief that it would help the workers as it basically deals with economic development and in addition to this, would prevent the occurrence of wage inflation.

However, there is a definition of minimum wage which is universally acceptable. According to the Wikipedia encyclopedia, it is simply defined as the least number in hours in terms of payment that an employer may legally pay to employees’. In examining this definition, it simply tells us that it is based on a set of rules guiding employees’ compensation for services rendered.

COST OF MINIMUM WAGE: ALGEBRAIC AND GRAPHICAL REPRESENTATION

ALGEBRAIC REPRESENTATION

The cost of minimum wage can be represented algebraically via the national income model. Hence, the cost is based on a macro-economic analysis given as: GDP= C+I+G+X-M. Where they are stated as follows;

GDP= Gross domestic product, C= Consumption, I= Investment, G= Government expenditure, X= Export, M= Import. In analyzing each of the following components, the following are observations based solely on the cost of minimum wage.

• CONSUMPTION: With regards to the consumption of goods and services, opponents to an increase in minimum wage believes that it would lead to a drastic reduction in the consumption of manufactured goods as well as services as the cost of production is transferred to the consumers. This would lead to an increase in supply and a reduction in demand owing to cost.
• INVESTMENT: Conservatives are of the opinion that an increase in minimum wage would lead to a slowdown in investment. Employers would be unwilling to expand their business because of the heavy cost that would be paid to labor. This is because an increase in minimum wage would drive up the cost of labor which is very essential to production. Hence businesses would be reluctant to expand thereby leading to a reduction in investment in the long-run.
• GOVERNMENT EXPENDITURE: Conservatives are of the belief that an increase in minimum wage would drive up government expenditure. To buttress their point, it should be noted that an increase in minimum wage would drive up the cost of production which would lead to job cuts. Job cuts would prompt the government to act quickly by providing social security programs that would discourage people from engaging in social vices and illegal activities. This increases the government expenditure.
• EXPORTS: An increase in the minimum wage would result in a drastic reduction in exports of the subject nation. This occurs as a result of the fact that when there is an increase in the minimum wage, it leads to an increase in the cost of production and eventually an increase in the prices of goods to be exported. This would eventually lead to a reduction in the units of exported goods.
• IMPORTS: Increasing the minimum wage would