These are some of the hidden negative effects a strict and inflexible minimum wage policy can have on an economy.
Is Singapore ready to pay the price?
1. It slows down the job market
Non-progressive minimum wage laws can cost the economy thousands of jobs. Minimum wage not only makes workers too expensive to hire, it also disrupts the principle of “supply and demand” by artificially increasing the number of people who will potentially want a job. If, for instance, a cleaning job at S$100 per hour is advertised, the number of interested – and rejected – candidates will be much higher than for the same job advertised at S$10 per hour.
2. It is inconsistent
In most countries with strict minimum wage laws the implementation and conditions of said laws tend to vary greatly. The wage can be set according to industry, set of skills, level of qualification, place of residence, family situation, etc. This means that the minimum wage can be an opportunity for some (those that are fully aware of how the system works) and a lost opportunity for others (those that don’t know enough to fend for themselves).
3. It hurts those that need it the most
Teenagers, workers in training, college students, interns, part-time workers, and those without experience or qualifications all have their options and opportunities limited by the minimum wage. Low-paying jobs remain the main entry point for those with few marketable skills, and enforcing a strict set of minimum wage laws alienates them from such possibilities; as an employer, one will necessarily look for the most capable or qualified person for a job that’s been paid higher than it is actually worth.
4. It increases prices
When employers are forced to pay employees a static and standard wage, they inevitably pass the higher cost onto the consumer. As the cost of producing consumer goods rises, so does the good’s price, which eventually leads to decreased purchasing power for both the company and the consumer.
5. It kills small businesses
Mandating a certain minimum wage can make it difficult for new or small businesses to grow and expand. Those that are able to cope with the rising operational costs tend to limit employee hours and expect of them that they do more in less time. Minimum wage also decreases the chances an employer will be willing to take by hiring and training a new employee.