Governmental intervention is essential to the functioning of any economy and in the case of the market system, it is necessary to correct imbalances brought upon by excessive speculation and unfair business practices. Coming to the issue of minimum wage, it is the “floor price” of labor that is determined by the federal government to guarantee fair wages to the workers. This is the minimum wage that must be paid to the workers in exchange for the work that they do. Governments set the minimum wage to help the poor. The issue of minimum wage crops up wherever small businesses are concerned as compensation packages that allow variable pay and performance-related pay are in vogue in the corporate and manufacturing sectors. But, as far as minimum wages are concerned, they affect a lot of millions of workers in the small business category. There have been a couple of legislations that were passed in the 1990s that impacted the way in which small businesses compensate their workers. These relate to the way in which small businesses can get deductions for equipment purchases and also raised the minimum hourly wage to $5.15. There are many who criticize the minimum wage concept as making businesses un-competitive and prone to avoid hiring more employees and introducing a “dead weight” into the economy. However, unless there is significant governmental regulation, it is conceivable that businesses in their quest for profits might resort to unfair wage structures for their employees. This is particularly the case in economic systems that have a large “unorganized” sector and thus the workers need to be protected from unscrupulous business practices. The government also has to ensure that the minimum wage is implemented apart from specifying the same.
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Dornbusch, Rudiger, & Fischer, Stanley (2004). Macroeconomics (p. 157, 558). New York: McGraw-Hill.