Minimum wage causes unemployment

By: Carissa Marie Palpal-latoc

The direct relation of minimum wage and employment were the subject of the study released by the Philippine Institute for Development Studies last August 2014.

Leonardo A. Lanzona Jr., the author of the paper mentioned the use of various methods to prove that the minimum wage law causes unemployment.

“By means of various econometric methods, the study was able to establish a causal relationship between minimum wages and employment. In particular, the analyses based on both national and regional pooled data and panel data showed that minimum wage policy reduces employment.”

The study showed how labor policies such as the minimum wage affect the economy.

“In this case, labor market policies, such as the minimum wage, results in labor market failure or distortions and lower social welfare, in the form of deadweight losses” Lanzona said in his study.

Because of the minimum wage law, small-scale businesses are also affected which results to lower benefits for the workers.

“Workers carry part of the burden of higher minimum wages in the form of lower benefits (though somewhat mitigated by mandatory benefit restrictions) and reduced worker security” Lanzona explained, citing Maloney and Mendez as his reference.

Lanzona also talked about how the reduce in the employment in the small-scale businesses which resulted in the production of more workers for the large-scale businesses but inevitably reduced the minimum wage usually received by these workers.

 

 

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