Beginning wage increases in industry sectors and on a smaller scale in businesses and organizations can have a beneficial effect on various parties. Businesses believe minimum wage increases may hurt them regarding profit, local economy, and potential health effects. While assumptions exist regarding these key issues, research suggests wage increases provide upticks in profit for companies, promote a positive work environment and less stress for employees, and there is minimal effect on the local economy. The idea that minimum wage increases encourages problems lacks key evidence both in large samples and in the long-term. Economy

A common misconception is wage increases create job loss. The economy does not have to be negatively affected by minimum wage increases. For example, in an article titled: “Are minimum wage increases absorbed by small price increases?” the evidence suggests minimum wage increases has no major impact on local economy. As authors explain, San Jose became part of a few areas in the state where the minimum wage increased. Not only was the price hike negligible in San Jose (1.5%), there were no layoffs or reduced competitiveness to businesses, particularly restaurants (Allegretto & Reich, 2017). Restaurant demand proved spatially inelastic. “Price differences among restaurants that are one-half mile from either side of the policy border are not competed away, indicating that restaurant demand is spatially inelastic” (Allegretto & Reich, 2017, p. 35). Some restaurants gained a competitive advantage from the wage increases due to improved recruitment, illustrating how boosting minimum wages is not detrimental to a slow or downturn economy (Allegretto & Reich, 2017).

By assessing the price elasticity and demand inelasticity, Allegretto & Reich (2017), determined the citywide economy was not negatively affected. “…citywide minimum wage policies need not result in substantive negative employment effects nor shifts of economic activity to nearby areas” (Allegretto & Reich, 2017, p. 35). They measured ‘negative effect’ by evaluating employment effects and shift in economic activity. With an uptick in employment effects in the restaurants and negligible change in economic activity, Allegretto & Reich (2017), supports the potential benefits of minimum wage increases. However, some research suggests there can be negative economic effects.

When companies in countries other than the United States offer increases in minimum wages, some negative effects occur. Countries like South Africa, for example, did not see a benefit in wage increases because employers began reducing employee numbers and demonstrated higher non-wage compliance. “The results suggest a significant employment reduction in agriculture from the minimum wage (and particularly a noticeable move away from employment of part-time workers), an increase in wages on average, and a rise in non-wage benefits compliance” (Bhorat, Kanbur, & Stanwix,...

1402). Essentially, companies that offered minimum wage increases felt they had to lessen their employee pool through layoffs and hire workers outside the legal wage rate requirements. One reason for this action is lack of competitive advantage due to poor wage regulation in South Africa (Bhorat, Kanbur, & Stanwix, 2014).
Bhorat, Kanbur, & Stanwix (2014), highlights real data confirming the fears businesses and companies have regarding wage increases. “…overall average of hours worked fell in the post-law period, suggesting that employers adjusted to some extent on the intensive margin.” (Bhorat, Kanbur, & Stanwix, 2014, p. 1402). In fact, in areas where wages remained low, workers were given more hours with fewer layoffs than in areas where businesses increased wages. “…hours of work increased more in areas where wages were lower in the pre-law period, driven largely by the fall in part-time employment” (Bhorat, Kanbur, & Stanwix, 2014, p. 1402). South Africa is not well regulated concerning wages and the various processes of the economy (Bhorat, Kanbur, & Stanwix, 2014). Because of the lack of regulation, minimum wage increases reduce competitive advantage for businesses that offer such increases.

What can be identified from this article is the potential reason why in some environments, minimum wage increases will not work. However, the United States is a regulated country and has the ability to control the way businesses operate. South Africa is an instance of poor regulation. The example from Allegretto & Reich (2017), proves wage increases can work and provide minimal negative effect to local economies.

Employees

Businesses may not raise wages because of the notion that employees will be laid off due to higher costs. Meer & West (2016), confirm these fears by suggesting drops in employment are not seen in the short-term with minimum wage increases, but can be seen in the long-term as businesses, especially small businesses cannot afford to maintain the wages. “…we find that the minimum wage reduces job growth over a period of several years. These effects are most pronounce for younger workers and in industries with a higher proportion of low-wage workers” (Meer & West, 2016, p. 1). The fear among those in business is that minimum wage increases will not fix other issues that maintain costs high for the business.

Things like rent prices, property tax, and other considerations can affect how a business pays their employee, especially regarding inflation. “To date, little is known empirically about how inflation indexing may alter the effects of a minimum wage on employment even as at least ten states now use regional CPI measures to index their minimum wages for inflation” (Meer & West, 2016, p. 22). Meer & West (2016), show a gap in literature pertaining to measurement of inflation and how inflation affects effectiveness of minimum wage increases. Suffice…