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Name
Name of Professor
Course name
Date
The negative impact of employment law on low-skilled workers
Introduction
Many individuals in the current economy depend on jobs to fulfill their basic material
needs. In the economy where people rely on work, there is always a relationship between the
employer and the employee; there are also laws enacted by the government to regulate this
relationship in a manner that protects the workers from exploitation by the employers. According
to Collins et al. (12), the laws that govern this ubiquitous relationship between the employer and
the employee are Labor Laws1. The laws, therefore, play a significant role in controlling the
practices of workforce unions and practices. However, in some countries where the level of
unionization is moderate, the sole duty of legally regulating the employer-employee relationship
is under what is called Employment Laws. As explained by Fossum (23) employment laws
dictate how individual employees are treated regardless of the status of their unions. The areas of
control include employee fringe benefits, privacy, payment of wages, work security, workplace
leave and workplace safety. My thesis statement is that the proposed and the current employment
laws have negative economic impacts on businesses. Organizations are therefore likely to shift
from low skilled labor to automated machines leading to reduced job opportunities and loss of
employment among the low-skilled workers.
When employment laws are critical in protecting employees rights and transferring
wealth to the less fortunate less skilled workers, they can also harm the business concerning
increased costs. The laws hurt businesses because they are protecting the employees without
considering the implications on the cost of conducting business (Meer, Jonathan, and Jeremy
1See, Anner, Mark. "Labor law reform and union decline in Latin America."Members-only

Library (2015).

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n.p).Companies can, therefore, adjust to increased cost by replacing less skilled workers with a
highly skilled workforce. My paper will first briefly explore two of the Employment laws,
minimum wage legislation and overtime working hour regulation law, as established by the Fair
Labor Standard Act, then explain how the laws negatively affect the less skilled employees
before concluding.
Background
The origin of employment laws dates back in 1938 when President Franklin Roosevelt
signed the Fair Labor Standards Act (FSLA). The FLSA establishes record keeping, overtime
pay, minimum wage and youth employment standards affecting impacting workers in the local
governments, state, federal and the private sector Keating (143). Again, outlines that employees
who are nonexempt covered2 must receive a minimum wage of not less than $7.25, which has
been effective since July 24, 2009, the rate of overtime pay must not be less than between one
and one and a half of the regular pay rate. The overtime pay is for the extra hours exceeding the
required 40 hours per week.
According to Repa, Kate, and Lisa (86) the key provisions of the Fair Labor Standard Act
include the following:
Minimum wage
The federal established minimum wage at $7.25, but an employee is entitled to the
highest minimum wage when subjected to both federal and state minimum wage laws.
Hours worked
The hours worked are the total hours that the employee is expected to be on duty, in the
premises of the employer in a particular working environment. It FSLA contains information
regarding what is compensable time (Repa, Kate, and Lisa, 85).
FLSA Overtime

2 Wilkins, Wendy. "Employment Law-The FAA's Exemption from the FLSA-Mandated

Overtime-Pay Provision after the Appropriations Act of 1996." J. Air L. & Com. 80 (2015): 277.

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According to Repa, Kate, and Lisa (67) this provision maintains that all the FSLA
covered employees be given overtime pay for hours worked above the normal forty hours at a
rate, not below one and a half their regular pay rate.
Record keeping
FLSA requires that all covered employers must keep records of all the non-exempt
employees and display official posters, which outline provisions of FLSA (Repa, Kate, and Lisa,
79)
Child Labor
These provisions were enacted to ensure that working young people work in safe
environments that are not dangerous to their health, well-being or does not interfere with their
educational opportunities(Repa, Kate, and Lisa, 54)
Now that I have explored the major provisions of the FSLA, I am now going to discuss
how these laws negatively affect the business and consequently impact on the less skilled
workers.
Minimum Wage Law
The minimum wage law has been there since 1938 with the signing of the FLSA.
According to Wilson (2), the minimum wage rate has been increased 22 times since it was
imposed. The law requires all employers to set their minimum wages at rates that are higher than
that of the federal rate. As explained by Wilson (7) the current minimum federal minimum wage
rate is $ 7.25 in the United States, but this can be higher as each state has the authority to set its
pay rate.
The proponents of the minimum wage law believe that its main aim is to eradicate poverty
among the low-income families by increasing the incomes of adult workers aged above 25 who
are supporting their families; however, data show that this is not true. According to Wilson (3)
most employees who earn the minimum wage are not poor adults in charge of families but
workers from wealthy households, part-time employees, and young adults. Further research by
the Bureau of Labor Statics in 2010 divides workers who were paid minimum wage rates into

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two groups. The first group making 49.0 percent of the workers were young adults below the age
of 24 and 62.2 percent of this group of workers were living in well-off families with incomes that
were twice or greater than that of the poverty level (Wilson, 3). The second category making
another half of the workers, 51.1 percent, constitutes employees aged above 25 years of age
(Wilson, 4). Research by DeNavas-Walt (72) show that 29.2 percent of employees in this group
live in low-income families. About 46.2 percent of workers in the group have incomes that are
one and a half times below the poverty level.
Evidence from the data discussed in the previous paragraph, therefore, confirms that the
belief that all the workers earn the minimum wages are spouses and family heads is not valid as
research shows that they are only a small portion of the workforce. Research by DeNavas-Walt
(66) found that those working for the minimum wages who were family heads and spouses were
only 20.8 percent, 32.2 percent of them were young Americans still studying in schools while
30.8 percent were children. We, therefore, conclude that the majority of minimum wage earners
are from well off families with incomes above the poverty level. Arguing that the minimum wage
rate helps better the lives of the poor American families is therefore not true but instead can have
extremely adverse effects on them.
After establishing that the minimum wage law does not benefit as such the low-income
families as believed by supporters of the employment law, I will examine how the minimum
wage law increases business costs and how the law negatively influences the employment
opportunities low-skilled workers, the majority of whom are the poor.
The Effect of the Minimum Wage Law on the Employment Opportunities
Minimum wage rates increase the costs of doing business making organizations respond
to the increased expenses in ways that affect the workers, owners, and consumers among others.
To understand how minimum wage increase will affect some group of employees employment

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opportunities, I will refer to the basic competitive model3. According to Wilson (7), the
competitive model assumes that companies respond to increases in minimum wages through
reduction of costs of production and making adjustments to neutralize the negative impacts on
their earnings. The changes that the companies will make are those that will help it adjust to the
rising costs of labor following a minimum wage increase, and these include passing the costs to
the employees and shifting to automation. According to Neumark, David, and William (37)
empirical research and economic theories in the last seventy years have confirmed that increase
in minimum wages reduces employment. When the minimum wage increases to levels that are
relatively higher than a competitive market, the loss of employment also becomes high, and the
most affected group becomes the least skilled workers.
In the paragraphs that follow are the data that serve as evidence for the argument that
increases in minimum wages reduce employment among the low-skilled poor workers.
Firstly, the statistical information gathered by Economists after the passing of the
minimum wage law indicates that minimum wage increase has severe negative impacts on the
low-skilled workers employment opportunities, especially in low wage and poor regions. As
found by Wilson (6), the initial imposition of the minimum wage law adversely affected Puerto
Rico, a low-income territory of the United States. About 120000 employees lost their jobs
within a period of one year in the first implementation of the policy, which placed the minimum
wage at 25 cents leading to a 50% unemployment rate increase in the region.
Another evidence that increase in the minimum wage reduces employment is the findings
of the comprehensive reviews of more than 100 studies of studies on minimum wages, which
was published by William Wascher and David Neumark in 2006. The analysis found that the
minimum wage indeed reduces employment opportunities for low-skilled workers who earn low

3 Also see, Matsudaira, Jordan D. "Monopsony in the low-wage labor market? Evidence from minimum nurse
staffing regulations." Review of Economics and Statistics 96.1 (2014): 92-102.

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wages (Dube, Arindrajit, and Michael, 33). Of all the studies reviewed, almost two-thirds pointed
that minimum wages have adverse effects on employment; whereas only eight of them indicated
positive employment effects of minimum wage. On the contrary, some studies also provide
acceptable evidence that point to positive employment effects of minimum wage laws According
to Wilson (6) most of these studies cite the monopsony model to give an explanation of the
positive implications of the minimum wage law. Although another research by Marx, Sarah, and
Brian (78) indicates that the positive minimum wage effects are individual cases and cannot be
applied to, only a few low-wage employers are large enough to adjust to a labor supply curve
that is upward sloping assumed by the monopsony model.
How the wage law harms the low skilled workers.
The minimum wage law removes competition for the Union workers leaving unskilled
workers unemployed.
A minimum wage law increases the demand for the highly skilled workforce as it reduces
the competition from the low-skilled labor force. According toWilson (7) the growing demand
for skilled labor leads to labor substitution where the highly skilled employees substitute the lowskilled workers in response to increased minimum wages. The change adversely affects the less
skilled workers for whom the wage laws were implemented to help. According to Wilson (7)
increase in minimum wage makes the low skilled workers very expensive compared to the
overall production factors, firms will, therefore, prefer hiring highly skilled workers to unskilled
employees as the difference in between the cost of hiring skilled labor and skilled labor will be
subtle.
Firms shift to automated machines to reduce costs of labor forcing low-skilled workers
out of the labor market.
Another reason is the shifting of companies to automatic machines in response to
increased labor costs. According to Wilson (9), many service industries will adopt automated
tools that support customer self-service to reduce the increased labor expenses. The automation

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of most services will lead to laying off many low-skilled workers employees who earn low
incomes at the cost of highly skilled workers.
Wage laws remove fringe benefits enjoyed by low-skilled workers reducing their future
employment opportunities.
Minimum wage laws change the way in which companies compensate employees.
According to Wilson (8), many companies prefer to employ less skilled laborers at very low
wages because it is not expensive and in return, the workers get other fringe benefits. The
compensation package for most unskilled and low-wage workers include mainly on the job
training, less expensive insurance, free board, and room paid vacations and subsidized child care
Wilson (6). When the minimum wage increases employers cut benefits to reduce the total
compensation costs while other firms may change the full-time low-income jobs with fringe
benefits to high-income jobs with no benefits4. Research by Wilson (5) found that increasing the
minimum wage by 10% reduced on-the job training by 1.5%-1.8 percentage. Since the only
way to build work skills for most unskilled workers is by on-the- job training, cutting training
means reduced future employment opportunities for the low skilled employees.
Overtime and Working hours Regulation laws
Control of overtime raises the costs of labor resulting in economic forces that can
neutralize, limit and reduce employment of some workers especially the less skilled ones.
According to Boudreaux, Donald and Liya (n.p) low-skilled workers are less likely to be hired
for overtime part time jobs because employers believe that they cannot perform the job more
efficiently as the highly skilled salaried workers who are on the job full time. It is, therefore,
more probable that the less skilled workers will suffer involuntary employment, and their wage
income will not increase as the policy makers expect.

4Also see, Bell, Brian, and Stephen Machin. "Minimum Wages and Firm Value." (2015).

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The fixed job- model, developed by Gregg Lewis, who was a labor economist, can be
used to explain how employers respond to overtime pay regulations. According to Smith (96),
the fixed job model postulates that businesses respond to overtime laws by reducing wages to
neutralize the increased costs following the increased working hours by overtime. The
regulations are therefore not beneficial as thought by the policy makers in increasing more job
opportunities and annual incomes of the low-skilled workers but instead cause loss of
employment and reduced job opportunities.
Evidence from research by Messner (87) show that most regulation policies on overtime
and working hours results in unemployment of the low-skilled workers instead of creating more
jobs. A study of the French labor laws that control the region of Alsace-Moselle, which reduced
the working hours to 35 hours from 39 hours, did not result in any positive impact on
employment suggesting that the reduction of strait-time has no significant positive results in
addressing employment. The study, therefore, indicates that reducing working hours does not
culminate in the growth of job opportunities but rather shows that the policies might reduce
employment.
Conclusion
As observed from the discussions in this paper, the employment laws are working against
their intended functions. The employment laws were imposed to help eradicate poverty by
increasing the income of low-skilled workers, but the results are turning against the very people
the laws were meant to help. According to International Labour Office (n.p), employers are not
willing to employ workers with little skills whose productivity is less than their cost. For
instance, companies cannot compensate workers with a minimum wage of $ 8.25 per hour when
in one hour they can only produce $ 7.25. Employers, therefore, will prefer hiring highly skilled
workers expensively because they can provide more within an hour than hiring equally valuable
low-skilled employees who contribute less than their cost (Schmitt, 11). Consequently, instead of

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the policies helping the less skilled workers, it hurts them most by reducing job opportunities and
pushing them out of the labor market. Policy makers, therefore, should pursue policies that result
in economic development and create equal opportunities for all classes of workers without
producing winners and losers in the employment market.

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