Economic Effects of Minimum Wage Laws

PNG’s Wage-Price Spiral: A Warning in Advance I learnt as a physics student that with every action, there is an equal and opposite reaction. PNG’s move to lift the minimum wage from K3.50 to K5.00 by 2026 is a milestone for workers. It acknowledges the struggles of families facing rising costs. But unless we are careful, the benefit could vanish within 12 months of implementation. The risk is a wage-price spiral. When wages rise without productivity gains, businesses react: prices of goods and services go up, landlords raise rents, and transport fares increase and so on. Soon, the extra pay buys no more than before. In an import-dependent economy like PNG’s, where inflation and kina depreciation already squeeze households, this cycle can accelerate quickly, accelerating a race to the bottom. Workers deserve fair wages. But a wage rise alone is not enough. Decision makers must pair it with measures that build productivity, support businesses, strengthen local production, and tackle inflation. Without this, we risk repeating history, with numbers going up on paper, but living standards staying the same, or worsening. I wrote recently about how AI and automation is spurring on a wave of redundancies, replacing millions of jobs globally. It won't be long before PNG businesses respond by automating clerical and white collar jobs. Advances in robotics are also taking over labour intensive jobs. No. it's not science fiction. Humanoid robots are real today and already deployed with 1 robot able to do the work of 10 labourers. The new minimum wage is progress, but it is also a test. Will we match it with reforms that make it meaningful, or will it simply trigger the next round of price hikes and redundancies? The government has made it's move. Businesses will respond.

Slapping on higher minimum wages like what’s being demanded of Zomato in India, isn’t a magic bullet and doesn’t really work. This is well studied in academic research and basic economics: – Increased wages increases the price of the service for the end customer. This means lower income localities are the first to no longer afford the service. – The increased cost means less demand. Less demand can actually suppress the net hourly gig workers pay. And less demand can decrease total gig worker jobs. – In the worst case, your minimum wage reduces demand so much that the entity can no longer operate as a business and risks taking away both the jobs and the service they provide. This doesn’t mean regulation shouldn’t exist, but you can’t blindly implement them without studying their effects. Many of the US studies talk about 5-15% wage increases, whereas some are proposing 20k/mo to 40k/mo in India, 100%. No one knows how disastrous those effects could be. Free markets work pretty well. Seattle gig workers study (2025): https://lnkd.in/gm5SrjWm Uber/Lyft Drivers in NYC study (2023): https://lnkd.in/gsg6esZY

*Nepal's Minimum Wage Paradox* Nepal’s statutory minimum wage (NPR 19,550) now stands at 1.12 times the per capita income, the fifth highest ratio globally and the highest in South Asia. While the cost of capital in terms of the bank interest rate has fallen significantly in recent months and is likely to remain low until investment demand revives, land and labor remain prohibitively expensive, eroding Nepal’s competitiveness across all three key factors of production. In theory, low-income countries enjoy cost advantages, but Nepal is an outlier, with some of the highest land prices in the world and rising labor costs that outpace productivity. Such policies, while they may look worker-friendly, have unintended consequences: increase in the cost of production, expansion of the informal economy, stagnation in formal employment, and substitution of domestic workers with lower-cost Indian and Bangladeshi labor who are exempt from these rules. This wage rise is especially damaging for sectors where Nepal could build a competitive edge, such as agro-based and endowment-driven industries, which risk losing cost advantages and being hollowed out by cheap imports. While it is true that Nepal has the highest price levels in South Asia (after Maldives), raising wages to chase prices only deepens the cycle. The real policy priority must be controlling structural costs and inflation, while boosting productivity and investment in high-value-added sectors. Without such measures, Nepal’s aspirations for higher growth and employment generation will remain elusive. #minimumwageparadox #structuralreform2.0 #nepalvision2100

What's the impact of increasing the minimum wage on employment? An overview of 88 empirical studies from the past 30 years finds that: 🔹 "most studies to date suggest a fairly modest impact of minimum wages on jobs" 🔹 "Estimates published since 2010 tend to be closer to zero." 🔹 "The 27 papers from the current decade [2020-2024] have a median of 0.00, and a mean of -0.15." See: Arindrajit Dube & Ben Zipperer (2024), Own-Wage Elasticity: Quantifying the Impact of Minimum Wages on Employment, National Bureau of Economic Research working paper 32925: https://lnkd.in/eK_bCgCB And the accompanying website, that will be regularly updated when new minimum wage studies come out: https://lnkd.in/ehTp96gh

California's new $20 minimum wage for fast-food workers means you could see more digital order kiosks in the state. Harsh Ghai, who owns 140 Burger King restaurants in California as well as a number of Popeyes and Taco Bell locations, told me that he's introducing digital order kiosks to all his restaurants to counter the higher labor costs. "We can't move fast enough on this," he said in an interview for Business Insider. "We are installing kiosks in every single restaurant." Ghai's already pushed his menu prices to the limit, he said. He's also cutting workers' hours, eliminating overtime, and pausing the development of new restaurants, he said.

A Randomised Control Trial finds that a minimum wage on an online job platform significantly reduced hours worked. Much of this reduction came from firms cutting low-productivity workers and replacing them with high-productivity peers - thus, minimum wages may particularly hurt those who they intend to help. This result contradicts the Card/Krueger natural experiment that I discuss in Chapter 7 of May Contain Lies, which found that minimum wage laws increased employment in the fast food industry. I highlight that paper as a great example of how to show causation, not just correlation: it's Evidence, not just Data. However, Evidence is not Proof, because it may not be universal. That paper was from 1992 and things may be different now. In particular, an online platform allows employers to measure productivity precisely, allowing for substitution of high- for low-productivity workers. By John Horton in the American Economic Review at https://lnkd.in/e6Ahpg6P; summarised in the War on Prices substack by Sophia B. and Ryan Bourne at https://lnkd.in/e-T2qdNV.

The Fair Work Commission has ruled the minimum wage and award wages will rise by 3.75% effective July 1, taking the national minimum hourly rate to $24.10. The news means around 2.6 million workers who earn a full-time minimum wage will get a pay increase of $33 per week to $915.91 if they work 38 hours, reports the Australian Broadcasting Corporation (ABC). The Australian Council of Trade Unions (ACTU) had pushed for a 5% boost, with business groups arguing for a 2% to 3% increase, while the federal government pitched for a rise in line with inflation. Minimum wages may affect about a quarter of employees but they make up about 11% of total salaries in the economy, reports Guardian Australia. In a statement, the commission said “a primary consideration has been the cost-of-living pressures that modern-award-reliant employees, particularly those who are low paid and live in low-income households continue to experience” but it was cautious to not fan inflation. Professionals are sharing the news — and advice for businesses — on LinkedIn. “Employers, HR professionals, senior leaders — it is now time to check what staff are being paid, considering what hours they are working, and ensuring that their remuneration more than meets minimum wage and entitlement requirements under applicable Awards once those minimum wages go up by 3.75% for the new financial year,” writes Trish Ryan, solicitor with Sydney Legal Consulting. What’s your reaction to the ruling? How will it affect workers and / or employers? Join the conversation in the comments. By Cathy Anderson Photo: Getty Images Sources: Guardian Australia: https://lnkd.in/gjDjzyTi Australian Broadcasting Corporation (ABC): https://lnkd.in/gRNdccGF Trish Ryan : https://lnkd.in/gNsm9iQx

April 2026 is quietly increasing costs for business owners. No big headline announcement. Just a few changes that slowly make running a business more expensive. Here are a few that matter: Minimum wage is increasing The National Living Wage rises to £12.21 per hour. That means a full-time minimum wage employee now costs roughly £25k+ per year before employer NI and pension. For businesses with teams, payroll just got heavier. Dividend tax is increasing From April 2026 the dividend tax rates increase: - 10.75% basic rate - 35.75% higher rate - 39.35% additional rate And the tax-free dividend allowance is still just £500. Which means most directors are paying tax on almost everything they take out of their company. Landlords facing more tax pressure Rental property has already been hit hard in recent years. Mortgage interest can’t be deducted as a normal expense anymore (Section 24), meaning many landlords pay tax on profit they never actually receive. And from April 2027, rental income tax rates will increase by 2% across the board. Employment costs are higher than most people think A £40k salary rarely costs a business £40k. Once you include: - Employer NI - Pension - Equipment - Software The real cost is often closer to £45k–£50k. Most SMEs massively underestimate this. The pattern is pretty clear. Higher wages. Higher tax. Higher costs. And SMEs are expected to just absorb it. Which is why the businesses that win over the next few years won’t just chase revenue. They’ll focus on profit, pricing, and margins. Because if your margins are thin… Every tax increase hurts a lot more.

The Link Between Compensation and Impact on Attrition In today's competitive job market, retaining top talent is a constant challenge for organizations. While many factors contribute to employee satisfaction and retention, one stands out as a crucial driver: proper compensation management. When companies invest time and resources in designing and implementing fair and competitive compensation structures, the benefits are far-reaching, impacting not only the bottom line but also the overall well-being of their workforce. The Impact on Attrition Employee turnover can be costly and disruptive to any organization. High attrition rates can lead to decreased productivity, increased recruitment costs, and a loss of institutional knowledge. Proper compensation management can mitigate these challenges in the following ways: 1. Retention of Top Talent: Competitive compensation packages make it less likely for top performers to seek opportunities elsewhere. They are more inclined to remain loyal to an organization that recognizes and rewards their skills and contributions. 2. Attracting the Best: A reputation for fair and competitive compensation can attract high-calibre candidates, making it easier to recruit top talent in the first place. This not only saves time and resources but also elevates the overall quality of the workforce. 3. Reduced Training Costs: High turnover necessitates continuous training and onboarding, which can be costly and time-consuming. Lower attrition rates mean fewer new hires and reduced training expenses. The Path to Effective Compensation Management To leverage the benefits of proper compensation management, organizations should: Conduct Regular Market Research: Stay informed about industry standards and market trends to ensure that your compensation packages remain competitive. Customize Compensation Plans: Tailor compensation packages to individual roles and employee performance, recognizing that one size does not fit all. Seek Employee Feedback: Encourage open communication with your workforce to understand their needs and preferences regarding compensation. Implement Fair and Transparent Policies: Employees should clearly understand how their compensation is determined, fostering trust and fairness. Regularly Review and Adjust: Compensation should evolve with the changing needs of the organization and the job market. In conclusion, proper compensation management is not merely an HR function; it is a strategic imperative that directly impacts employee happiness and retention rates. Organizations that prioritize fair and competitive compensation will find themselves not only attracting and retaining top talent but also cultivating a culture of loyalty, commitment, and success. In this competitive business landscape, investing in your employees through proper compensation management is an investment in your company's future. #EmployeeHappiness #CompensationManagement #RetentionStrategies #TalentManagement