General idea
There is no denying the upward trend in most European countries, with the increase in the minimum wage year after year. However, in this day and age, would this measure really be positive?
Idea of the minimum wage
If we were to analyse the effects that a rise in the minimum wage would have, we could say that it would be very positive for all of us, after all, who wouldn’t be interested in a rise in their salary?
However, the economy is very complex, and depending on the situation of the country, it could be good or bad.
Let’s take the example of a healthy nation, with an upward trend, which wants to become a world power, if we increase the SMI here, we would increase the internal consumption of the country, because if they give us a few extra savings… I would at least go down and have a few beers!
Now seriously, if we increase the SMI, the purchasing power of the population would increase, and thus boost spending in sectors such as the hotel industry, domestic tourism … strengthening the aggregate demand for domestic consumption, with a positive impact on production and employment.
If those who previously received a lower salary now start to generate more income, we would also be contributing to reducing social inequalities, since, as we have said, the less well-paid would receive a higher income.
Finally, as a strong point for the reinforcement of the ecomomy, we would reduce the black economy (undeclared economic activities, more commonly known as “undeclared work”), since a larger part of the population would want to start paying back their earnings due to this increase.
In conclusion, with all these measures, the nation would generate more purchasing power and strengthen its economy.
Let us now turn to the opposite side, a nation with a downward trend. If you are one of the lucky ones who, as life would have it, happen to be an employer and hire people, first of all, congratulations, but if the minimum wage is increased, you will not be so happy.
In case the country is generating a positive GDP, there would be no problem as the employer would be able to cope with this increase, after all everything is going well. However, in case the economy is down, the employer will be forced to take other measures to recover that increase in wages, by laying off staff, subcontracting and of course, who is going to hire more staff now, that would mean higher losses, so what’s the point, thus encouraging “moonlighting” (in an adverse way to the previous situation).
As a conclusion in this other situation, instead of generating the strengthening of the economy, this nation could reach a process of clear recession, where everything would be a tremendous chaos.
In this graph, we see the supply and demand curves represented.
The point where the two curves intersect is called the equilibrium point.
Well, it is then said that when the minimum wage is above this equilibrium point, there will be a loss of employment, while if it is below, it will have no effect.
The optimal wage will be located at the equilibrium point.
We can therefore say that an increase in the minimum wage can have both a positive and a negative impact on the economy, i.e. it will depend on the situation of the country.
What do you think?
