A minimum wage, which sets the lowest legal wage a company can pay its workers, is designed to prevent exploitation. Its backers argue the pros, including guaranteeing low-income workers a liveable wage, outweigh the cons. But who really benefits from a legally mandated minimum wage?
The minimum wage reduces government spendingShow moreShow less
Governments can reduce spending on social safety nets when employes are forced to pay a national minimum wage.
Government assistance to the unemployed is designed to cover a person’s basic costs of living but not much more, meaning that the unemployed living on benefits has close to no disposable income for personal expenses beyond basic amenities. Chris Gouldon at the Joseph Rowntree Foundation found that “new analysis shows that you’re still better off in low paid work than on benefits.”  This is because the minimum wage is set higher than benefits in order to incentivize the unemployed to work harder to enter the workforce. When held against unemployment benefits, the minimum wage provides an incentive to work.
Because the minimum wage regulation forces employees to pay this base, all workers are guaranteed a fixed basic income (as long as they are able to work enough hours). Without a minimum wage rate, there would be no guarantee that a person would make more working than on benefits, and so fewer people would be incentivized to work, believing that they may even be better off on benefits. The enforcement of minimum wages is crucial to this dynamic because it ensures that people who can work do work because, under this system, working is more profitable than being on benefits.
However, while the minimum wage encourages work by promising more money than benefits, minimum wage work does not necessarily provide enough to cover the cost of living. With the cost of living rising faster than minimum wage, more people are struggling to support themselves on a minimum wage income. Therefore, the minimum wage is only effective at incentivizing people to work as long as a full-time minimum wage job provides enough to live on.