My colleague azhar wrote about an interesting topic that effects the economy in many ways, in his blog he stated a point that minimum wage should be increased in order to increase the living standards and increase the overall economic activity. I agree with azhar in some points, however i disagree in others.
To begin with, an increased minmium wage will mean a higher welfare for the workforce, which will result in higher real income , this means that they have more to spend on goods which will improve their living standards and increase the overall economic activity thus keep the money cycle floating in the economy resulting in an increase in the GDP of the country which indicates growth.
On the other hand, an increase in the minmium wage will result businesses to reduce the quantity of labor , as shown in the diagram below, the minmium wage effect raises the wages, thus resulting in excess supply of labor as the quanitity demanded is less than the quantity supplied. the increase in the minmium wage has back fired on the policy makers as they are facing a new problem now which is hihger unemployment .
In conclusion, the government should do a market research before adopting any policy or trying to increase the minmium wage because they might face a new problem which is higher unemployment.