Review of Related Literature

One of the vintage concerns of laborers or workers not only here in the Philippines but around the world
is the increase of their minimum wage. Minimum wage has been defined as the minimum value or
amount of remuneration that an employer is required to pay wage earners for the work performed
during a given period, which cannot be reduced by collective agreement or an individual contract. Its
purpose is to protect workers against unduly low pay. (ILO, 1996-2020) People always think that the act
of increasing the minimum wage will only have a positive impact in the business world but no, it also
have negative impact both in the employer’s perspective and in the business.

The potential benefits of higher minimum wages come from the higher wages for affected workers,
some of whom are in poor or low-income families. The potential downside is that a higher minimum
wage may discourage firms from employing the low-wage, low-skill workers that minimum wages are
intended to help. If minimum wages reduce employment of low-skill workers, then minimum wages are
not a “free lunch” with which to help poor and low-income families, but instead pose a trade-off of
benefits for some versus costs for others. Research findings are not unanimous, but especially for the
US, evidence suggests that minimum wages reduce the jobs available to low-skill workers. (Neumark,
2007) In the United States of America, the primary argument advanced in favor of raising the minimum
wage is that higher earnings would improve the overall standard of living for minimum wage workers by
providing them with a more appropriate income level to handle the cost of living increases. (J.B.
MAVERICK, 2020)

According to Scott, raising the minimum wage increases worker productivity. Studies by leading
economists, including Nobel laureate George Akerlof of Georgetown University, found that employee
morale and work ethic increase when employees believe they are paid a fair wage. Economists have also
linked higher wages to better physical and mental health and reduced “decision fatigue,” leading to
higher productivity. Raising the minimum wage also reduces turnover. Higher wages lead to lower
employee turnover, resulting in reduced recruiting and training costs. An analysis by the Center for
American Progress estimates that the cost of replacing low-wage workers is equal to about 16 percent
of the employee’s annual salary. A 2012 study by Arin Dube, William Lester, and Michael Reich
concluded that increases in the minimum wage can reduce turnover substantially, leading to savings in
turnover costs. Raising the minimum wage reduces absenteeism. When workers earn higher wages, they
are absenteeism from work less, leading to increased productivity. A 2010 paper from economists Laura
Bucilia and Curtis Simon concluded that higher minimum wages are associated with lower rates of
absenteeism for reasons other than illness. Raising the minimum wage increases consumer spending
and boosts the economy. A study by Doug Hall and David Cooper estimated that a $2.55 increase in the
minimum wage would increase the earnings of low-wage workers by $40 billion and result in a
significant increase in GDP and employment. A raise in the minimum wage predominantly benefits low-
wage workers, precisely those most likely to put additional income directly back into the economy, kick
starting a virtuous cycle of greater demand for goods and services, job growth, and increased
productivity.

While according to J.B. Maverick, among the disadvantages of increasing the minimum wage is the
probable consequence of businesses increasing prices, thus fueling inflation. Opponents argue that
raising the minimum wage would likely result in wages and salaries increasing across the board, thereby
substantially increasing operating expenses for companies that would then increase the prices of
products and services to cover their increased labor costs. Increased prices mean a general increase in
the cost of living that could essentially negate any advantage gained by workers having more dollars in
their pockets.

Another projected problem resulting from an increased minimum wage is that of potential job losses.
Many economists and business executives who point out that labor is a major cost of doing business
argue that businesses will be forced to cut jobs to maintain profitability. The 2019 CBO report estimates
that raising the minimum wage to $15 an hour by 2025 would result in the loss of approximately 1.3
million jobs. The numbers could be substantially higher if companies made a major move toward
outsourcing more jobs to less expensive labor markets outside the country. One potentially negative
impact that is less readily apparent is the possibility that a higher minimum wage would result in
increased labor market competition for minimum wage jobs.

The net outcome of an increased minimum wage might be a large number of overqualified workers
taking minimum wage positions that would ordinarily go to young or otherwise inexperienced workers.
This could impede younger, less experienced entrants to the job market from obtaining work and
gaining experience to move their careers forward.

In conclusion, whatever maybe the changes are in the work profitability of a laborer will automatically
give positive and negative impact not only in the laborer but also in the business and the whole
community. Poverty will be lessened but there will be job loss too. Hence, the only thing that can
balance this is that the lawmakers of a country should make a law not only favoring the laborer but also
considering the effects that can be inflicted to the companies who gives jobs and salaries to the
employer or laborers as well as to the whole economy which defines the capability of a country in
providing the needs and welfare of its people.
References:

 ILO: General Survey concerning the Minimum Wage Fixing Convention, 1970 (No. 131)
 https://www.ilo.org/wcmsp5/groups/public/---ed_norm/--
relconf/documents/meetingdocument/wcms_235287.pdf
 https://www.investopedia.com/articles/markets-economy/090516/what-are-pros-and-cons-
raising-minimum-wage.asp
 Hon. Robert C. Scott, https://edlabor.house.gov/imo/media/doc/FactSheet-
RaisingTheMinimumWageIsGoodForWorkers,Businesses,andTheEconomy-FINAL.pdf
 https://toggl.com/track/pros-and-cons-of-raising-minimum-wage/