Minimum wage policy has been in existence in the U.S since 1938. Minimum wage laws state a constant minimum wage to be paid to employees and nothing less. The policy aims at protecting workers from exploitative employers, but it also helps employees cope with the changing economic environment. Although it comes with some benefits, economic research reveals demerits to not only the employees, but also the state. Particular examples of the disadvantaged groups are low-skilled workers, minorities and youth, who happen to be the targeted populations.

This regulation has both positive and negative effects on businesses, but negative effects could outweigh positive effects. The policy may compel businesses to adopt specific adjustments to enable them to comply to these requirements. While the minimum wage policy benefits the workers, businesses say they are largely disadvantaged and that the policy disrupts profitability and growth due to an overstretched wage bill arising from increased labor costs.

Adjustments Made by Businesses to Cut Costs

Substitution of Labor: With the rising popularity of online content, many businesses have taken their businesses online to forgo having to invest in brick and mortar stores. By simply investing in a business internet plan for their main office and outsourcing much of their product manufacturing, shipping, and website development or management overseas, businesses can save a fair amount of money in the long run.

Other businesses respond by employing a greater number of less-skilled workers at the expense of the more skilled ones, given that the high- skilled workers require higher salaries. Companies may also need to retain only a few skilled employees as opposed to recruiting a large pool of semi-skilled employees. Consequently, companies can opt for a reduction of bonuses paid to skilled workers.

Reduction of Employee Benefits: Higher minimum wages force firms to adopt practices that reduce their expenditure. One of the general methods applied is the reduction of worker benefits such as healthcare. Coompanies also respond by reducing working hours while maintaining headcounts. In other words, there are more part-time employees. Such measures reduce their expenditure and help them to comply with the law.

Increasing Worker productivity: Some firms try to increase worker productivity as a way of cushioning themselves from collapse, given the increased expenditure on wages. They achieve this by putting in place rules that require better worker attendance, insisting on faster completion of duties and imposing extra tasks on workers. Additionally, businesses can reschedule working hours for maximum productivity. They can also reduce their manpower by adopting performance contracts to increase firm productivity.

Firms often respond to changes in the compulsory minimum wages in ways that can negate the desired intentions of policy makers. Such actions have negative effects on both the public and policymakers. Observers say that the minimum wage policy is a crucial balancing tool that can help non-skilled and semi-skilled workers to attain financial freedom, especially in an economy that is characterized by the rising cost of living. However, businesses can adjust their cost components while ensuring that they comply with the law.

Effects of the Minimum Wage Policy on Businesses

Increased Financial Strain: Businesses are forced into increasing their salary budgets to cater to the regulation in total disregard of their financial ability or cost of maintenance and running of a business. When a business is mandated to budget around labor costs, it may have to reduce budgets to business needs such as advertisement and supply costs, or incur financial strains that can eventually lead to its closure. Often, that strain is usually and subsequently transferred to consumers who have to part with extra money when buying their products.

Loss of Manpower: Minimum wage increases benefit the most skilled manpower at the expense of those of the lower cadre. An increase in the minimum wage forces companies into focusing on retaining the highly skilled workers and doing away with semi-skilled employees. In an attempt to comply with this regulation, most firms reduce job opportunities to semi-skilled workers, thus disadvantaging the majority of American workers. Such a behavioral response usually offsets the positive labor market, which the minimum wage policy strives to help. In reality, reduced manpower leads to reduced productivity in most cases.