The cause of poverty

by Rowelyn A. Bigayan

Increasing minimum wages may cause negative effects to the employment system and economic growth of the country.

At first sight, the minimum wage policy may seem to reduce poverty because the protection and benefits of the employees and their families are its main goal. “The Labor Code contains several provisions intended primarily to protect workers.”

According to the study of Leonardo A. Lanzona, Jr., the increasing minimum wage reduces employment here in the Philippines. As minimum wages increases, employers will have to lose their workers. “Minimum wages, more than other forms of regulation, are more directly associated with unemployment.”

Small firms and enterprises are the ones who are actually affected by the increasing minimum wage while the larger firms receive most of the positive effects.

Small firms will have difficulties in transforming into larger firms, because as minimum wages increases, the cost of production also increase in which employers will have to reduce the numbers of their workers.” In the process, the production and the demand for production workers decline.”

When this happens, larger firms will receive most of the positive effects. “Because small scale firms have started to decline, larger firms are able to acquire more production workers, presumably at starting wages lower than what experienced workers would have received in smaller firms.”

Since minimum wages increased, companies will hesitate in employing younger and less-educated workers, because it would require training.

Many citizens will be unemployed and workers would lose their jobs and will end up looking for jobs with lower pay which may also lead to an economic downgrade.