[quote=“siriusly”]An increase to minimum wage has to be looked at over 3 economic periods; short term, medium term, and long term.
In the short term an increase to the minimum wage has a no “real” negative effect. People (employees and consumers) are are generally happy, there is more money in their pockets, therefore having a greater disposable income, which in turn leads to a higher level of consumption. Your nominal wage and you real wage are currently equal…Great!
In the medium term firms start to notice that the increase in wages is beginning to effect their bottom line, so they begin to increase their markup, in order to retain or increase their profit margins. As well, firms will begin to automate in order to keep costs down, which means unemployment for some…or many. Your nominal wage has increased, but your real wage has just decreased…Not so Great!
In the long run the increase in minimum wage will see a high decrease in in employment for the “least skilled” workers, thus dramatically increasing the unemployment rate in youth, and ethnic workers. When unemployment rates are high the government is generally forced to increase unemployment benefits, which will only aggravate the situation more by having a correlational effect increasing the natural rate of unemployment. After a long period of time, the high level of unemployed workers will have to accept this lower real wage, therefore decreasing the natural rate of unemployment.
From an economical point of view, is this short term gain really worth the long term effects?[/quote]
I don’t think that demand for goods and services offered by low wage employers is quite so elastic as you suggest. After Newfoundland & Labrador further increased its minimum wage to $10/hr last July the unemployment rate declined from 15.3% to 13.6% in six months. cupwire.ca/articles/41140 NL has the third highest minimum wage in the country, while “The Best Place on Earth” takes last place.