Enforced Minimum Wages Disadvantages

• Everyone deserves to earn a living wage, meaning people deserve to be able to earn enough money to pay for basic necessities like food and shelter. Helping to provide adequate wages for American workers is one of the many reasons the U.S. government passed the Federal Labor Standards Act in 1938. Though enforcing a minimum wage has its many advantages, people should be aware of its disadvantages.

Cost-Push Inflation

• Cost-push inflation is when general prices of goods and services increase over a continual period. Requiring a company to pay their employees a minimum hourly wage increases the company's overall operating costs. Businesses then pass these costs off to consumers by increasing the prices for goods and services. This then leads to cost-push inflation. If consumers are not willing to pay for the higher prices of a good or service, it may force the company to cut production, which can lead to employee layoffs.

Barriers to Entry

• When enforced minimum wages lead to higher costs, employers typically choose to hire and retain employees with more work experience and higher skill levels. Employers view these employees as the most productive. This practice creates barriers to entry into the job market for people looking to gain more work experience, such as teenagers and those seeking to learn new skills with lower-paying entry-level jobs.

  The theory is if these people were able to negotiate a lower wage until they gained an adequate amount of skill and experience, it would remove the barriers to entry into the job market and lead to a decrease in the overall unemployment rate.

Reduced Hours and Benefits

• To compensate for the higher cost or production due to enforced minimum wages, employers often reduce employee hours. In this case, full-time employees may have their hours reduced to part-time employee status. Part-time employees may have their hours reduced to less than part-time. Employers may further reduce their workforce by laying off employees who work less than part time.

  Another way to compensate for higher production costs is to increase the cost of employee benefits packages. This leads to higher out-of-pocket expenses for employees, decreasing their income and overall household wealth.