Minimum wage and cost of living

Several people have argued that a minimum wage will increase the cost of living further. This is true, but the impact will not be as large as feared.

Wages is only a part of the total cost of business operations. The other costs are rental, government levies and profit margin. Many workers now earn more than the minimum wage, so the increase in wage cost will only apply to the workers who now earn less than the minimum wage. This increase will not be significant for most businesses, except those that depend on low income workers.

Even if the wage cost increases, the price charged to consumers may not increase to the same extent. Businesses have to meet competitive pressures. If they are squeezed, they will have to pay lower rental on their business premises and reduced profit margin. The increase in wages will be partly offset by the reduction in these other costs.

In countries with a minimum wage, the property prices are at a more reasonable level (in relation to average earnings) compared to countries with wide disparity of income.

A minimum wage policy reduces the disparity of incomes and will lead to a more fair and stable society, which will lead to better long term growth.

Tan Kin Lian