According to Low Pay Commission. 2006 ,a minimum wage is the lowest wage that each employee can legally get from an employer in hourly, daily or monthly basis. This is the lowest amount that a worker can sell his/her labor. Most of the countries have enacted law governing minimum wage that workers can be paid inn their jurisdiction. By each country independently having their laws, there has been different opinion regarding the merits and the demerit of minimum wage legislation. Those who support the move argue that it increases the living standard reducing unemployment, while those who do not support it argue contrary. They say that enacting of a law that support minimum wage creates unemployment especially to the unskilled sector and thus harming the small-scale business.
Minimum wage legislation background
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The minimum wage registration comes into existence to ensure that sweatshops were controlled from the way they flourished in Chicago (Ursula, 2009). They had been employing so many employees especially women and the young people and paid them standard wages. The government says that the sweetshops were unfair in their bargain power and brought a minimum wage control to ensure that they pay their workers better. After that, the minimum wage legislation has been an increase in very many countries. Nowadays, it is used to cover workers who work in fields that pay lowly.
The minimum wage has risen amid strong social appeal. They have shown their concern on the ability of it providing income equity to the least paid workers. This can achieved by restructuring the salary politically to ensure that worker are able to get social preferable income distribution (Richard ,1994). Therefore, according to the jurisdiction put in place, the minimum wage control is used as a measure to reduce poverty. However, the laws enacted have experienced great challenges especially from the small business sectors.
Although at the initial stage the minimum wage was introduced with a goal of reducing poverty in the community, the economist disagree its effectiveness in meeting its goal. Some argue that it has brought negative impact that positive. George Stigler in 1946 gave a classical exposition of the minimum wages shortcoming as they are seemingly accepted in globally. He said that by dispensing such law, the employment rate would fall considerably in proportion to the increase in wages and consequently reducing the overall earning. He also said that, if the workers from the covered sectors were employed by the uncovered sector after losing their jobs there, the decrease in wages in the uncovered sectors would exceed the increase in the wages in the covered sectors increasing the poverty level. The move has an impact on the family income distribution unless some has been employed in well paying careers. The legal restriction to company that they have to pay a given wage to employee is equivalent to decreasing opportunity in the small scale business employment sectors and therefore exposing employees to the wrath of the large employment sector depending with if they have a will to employ them (Low Pay Commission. 2006).
Negative impacts of minimum wages legislation in business development
Low productivity level
The legislation of minimum wages ensures that the business employ less personnel to ensure that they can meet their salary demand according to the standard set. This is caused by wage growth that surpasses productivity (Ursula, 2009). By this happening, the employment declines rising the unemployment. This move makes the small businesses that may be having growth potential to be halted by the act of paying their employees exorbitant salaries in relation to their productivity level. Therefore, by legalizing minimum wage limit, the business development goes down, as most of them cannot afford to maintain the number of the employee they requires to improve their business.
Decrease in productivity
Due to the high cost brought by the personnel recruitment, many company will opt to decrease their employees making them to work extra hard. This leads to low productivity due to fatigue. The business development depends on the productivity of its employees in pursuit of its goals. By decreasing the productivity of the personnel working in the company, the business development tends to be sluggish in its development.
Low skill development
The minimum wage legalization makes the employer and the employee to fail to have a collective bargaining power in the remuneration as it is predetermined. The law makes people that are more skilled in the business to feel demoralized, as they are not capable of lobbing for salary increment as such methodology have already been put in writing (Richard ,1994). Therefore, this makes them to be reluctant in dispensing their skills to their juniors making the skills development very poor in the covered sectors. In addition, the companies affected are not able to increase their capacity soon as the business growth is derailed making them not have fresh people with different ideas get to the company. This makes the company to reduce its development very much and thus failing in their competition.
Failure of small business sectors
The development of business can be measured by the ability of it to sustain itself in the market. Small business sector has shown potential of growth as they lay their growth strategy aiming t achieve their goal at a specified time. These strategies require personnel to execute them to meet the required target. Unfortunately, the number of the employees in the business determines the amount the business will part with at the end of the day. Therefore, the employee salary should be well thought of depending with the situation of the business and the targeted growth of that company. If the wages are predetermined by law this limits especially the small business sector ability to flourish and develop to bigger sectors.
The small business is also affected, as the law does not consider the low cost competitors in the market place. It also hampers reduction of wages during economic downfall in the business. The move ensures that the price of the products produced is hiked to cater for the salary expenses imposed on them. This makes the products from the affected companies be lowly preferred thus affecting the development of such businesses.
Reduction in resource availability
The legislation of the minimum wage makes the resources strategic position to shift as the physical capital and trained workforce are accumulated. This reduces the business growth and the employment pattern making some of the business unable to access such vital resources. By denying equal distribution of resources to all business sectors, it makes some businesses to fail in expenses of the others. The small business sectors are the most vulnerable as they have low financial power to scramble for the best resources with the bigger business sectors. Therefore, this leads to limitation on development of such factor or otherwise grows at a snail speed.
According to Ursula 2009, the most important aspect of business growth is the ability to equip itself with the right personnel to carry out the business strategy. Bigger and smaller business sectors are important in the growth of every economy. By supporting both business sector at their capacity by enforcing the right measures suitable for their growth makes the economy grow, it also ensures that the standard of the employees are increased. This in turn motivates the workers making them extra hard in the development of the business. Therefore, by touching the employment part, the minimum wage legislation has serious barred the small business sector to be affected especially in their growth strategy. Therefore, a balance should be kept to protect employees from exploitation as well as opening good avenues for business growth.