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Do Minimum Wage Laws make Labor fixed or Variable?

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Minimum wage laws were introduced all around the world around the mid- 20thcentury to protect the basic rights of the workers who are the real force behind the growth of Economy. Minimum Wage laws ensure that salary that a worker is being paid for his or her hard work is not less than the permissible limit of which he/she is entitled to. Due to the diversity of industries these days, it depends on country to country on whether they choose to categorize minimum wages from industry to industry depending on the amount of physical labor a worker puts in or whether they choose to have a basic wage for all the categories. Another category for defining minimum wages is hourly, weekly and monthly, it has been seen as a trend that most countries developed part of the world tend to follow the hourly and the weekly criteria while those in the developing world tend to follow the monthly criteria for defining minimum wages.

Coming on to the Question of whether minimum wage laws make labor fixed or variable, I shall say that after the coming of minimum wage laws the Labor costs have become semi-variable.

Semi Variable is a mixture of fixed expenses and variable expenses, to know about what Semi Variable means, we should first know what Fixed Expenses is and what Variable Expenses is.

Fixed expenses are the expenses that remain at a particular value and don’t change much overtime such as cost of Equipment or the Property Tax while Variable Expenses are those which change from time to time such as the cost of Raw material or the cost of Electricity or the cost of transportation. So what Semi Variable expenses mean is those expenses which are fixed to a definite point but then become variable afterwards.

To explain how Labor after Minimum Wage is Semi Variable Expense let’s take an example:-

Let us suppose there is an automobile factory which manufactures a certain car in 10 hours. It takes one worker to manufacture the same car in 16 hours while 2 can do the same in 10 hours. Now let us suppose the minimum wage for workers in Rupees1000 per hour so the labor expense per car goes to INR 16,000 when one worker is working, while the labor cost for same car is INR 20,000 when 2 workers pay but now the rate of production is increased.

Let’s suppose the factory has 10 workers and wants all of them to work for 10 hours in day in pairs, this implies that the factory has a day to day cost of INR 1 lakh per day in manufacturing 5 cars. It is clear that the labor cost per hour has increased but so has the production.

The last scenario is that of extra hours, another major factor contributing to Labor costs being Semi Variable is the concept of extra working hours, while it might be fixed for the normal working hours, factory owners sometimes tend to tell their workers to work some extra hours on some given days and for those days labor costs go up depending on the extra hours the workers have put in. So this depends on from day to day and is variable while being fixed hence Semi-variable.

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