Definition of Minimum Wage:
"The smallest amount of money that
employers are legally allowed to pay someone who works for
The question of fixing a minimum
wage for the workers by a competent authority is gaining
importance in every industrial country. The government or the
trade union of a country may fix a minimum wage of all the
workers on a national scale or in a few sweated industries. This
step is taken to avoid or reduce the industrial friction.
Advantages/Merits of Minimum Wage:
The advantages which are claimed for
fixing the minimum wage for the labor are as follows:
(i) Ensures Minimum Standard of Living. If minimum wages
are fixed for all the workers, it will ensure minimum standard
of living for all of them. The labor will be sure of the reward
and they will not be at the mercy of the employers who are
always bent upon exploiting them.
(ii) Effect on Efficiency. When the laborers are able to
maintain the standard of living by the minimum amount fixed by
the competent authority, they feel contented and work, more
(iii) Inefficient Employers are Eliminated. If an
entrepreneur is paying low wages to the workers because he is
not able to manufacture the goods al the competitive price, then
he may have to close down his concern when the minimum wage is
fixed. If such inefficient employers are eliminated from the
society, it won't materially affect the total production of the
community. So earlier they leave, the better it is.
Disadvantages/Demerits of Minimum
(i) Decrease in Efficiency. When a government fixes a
minimum wage for all the workers or in a few sweated industries,
then that amount is often considered to be the maximum by the
entrepreneurs. If a worker is very efficient, he will not be
paid higher wages than fixed by government. It will thus result
in curbing the incentive of the workers and thereby decreasing
(ii) Fixation of Minimum, Wages a Difficult Affair. It is
very difficult to fix a. minimum wage for all the workers at
different places in a country. For instance, in London,
Amsterdam, Bradford and Lords, the cost of living is higher than
at other places in England. So at these places, the minimum
wages should be fixed higher than at other places. If a higher
minimum wage is fixed at one place, then it may not suit the
other employers. They may refuse to employ labor or they may try
to substitute machinery for labor. If they succeed in their
mission, it will, result in mass unemployment in the country. If
a minimum wage is fixed low, then it may not serve the purpose
for which it is fixed.
(iii) Difficulty in Enforcement. If a minimum wage is
fixed, then difficulties may arise in its enforcement. If the
labor is unemployed, they may agree to work at a wage lower than
that fixed by the government.
(iv) Disorganizations in Business. If a minimum wage is
fixed in sweated trades only and not on the national scale, then
there will be flight of capital from the former to the later.
This will cause disorganization in the whole business.
(v) Unemployment. Another great drawback of fixing the
minimum wage is that it can tend to reduce the amount of
employment in a country. When minimum wage is fixed, the
employers try to increase the prices of the commodities in order
to cover their increased labor costs. If the demand for the
commodities whose price are raised is elastic, then the total
quantity demanded will fall. When the commodities are not
disposed off at a profit, some of the firms will close down
their businesses, others may reduce the number of the workers.
Some of the firms may try to substitute labor saving machines.
The result of this will be that there will be greater
unemployment in the country.