The wage dilemma

 The Ministry of Labour, Employment and Social Security announces a new minimum wage for full-time workers in Nepal from Rs. 15,000/- to 17,300/- and additionally adds a per-hour minimum wage for part-time workers at Rs. 95/-. For Full-time workers, the daily minimum wage is Rs. 668/- and Rs. 89/- per hour.

Initially, Nepal only had a minimum wage for full-time workers for a month and these are some new developments within the nation that will cause various consequences whether positive or negative. Prior to fiscal year 2021-22, the minimum wage was Rs. 13,450 which later increased to Rs. 15,000/-. This does show that there have been a lot of changes and mostly raises in the minimum wage of the country which is both advantageous and disadvantageous.

Obviously, the advantages of raising the minimum wage directly increase the income of low-wage workers, helping to improve their standard of living and reduce income inequality, a huge necessity in a  country like Nepal. Furthermore, this allows more money to flow into the Economy of Nepal as minimum wage workers will always spend more compared to the upper classes proportionally.

However, it can have negative impacts on small businesses as they have to pay more for their employees which affects the business more directly compared to larger businesses. Raising the costs of operations means reducing total profit and plummeting their growth, meaning less growth of small industries in the country. In a developing country like Nepal, it can certainly be a huge issue to tackle. A minimum wage could lead to an increase in informal employment or under-the-table payments, as employers seek to bypass the legal obligations of paying the mandated wage. This can undermine the formal labor market and potentially hinder tax collection efforts, which has always been an issue in Nepal. A consequence of tackling inflation and providing more wages to workers would actually be more inflation(or Inflation causing Inflation). Higher labor costs resulting from a minimum wage increase might lead to an increase in production costs, which, in turn, could be passed on to consumers through higher prices. This could contribute to inflationary pressures.

Out of all this the most important issue with a minimum wage, the unemployment. The graph below is the graph of the labor market where the x-axis has the number of laborers in the market and the y-axis has the wage rate.

The declining line is the Demand for Labour in the market, which means the higher wage a worker is paid the less an industry wants that worker and vice versa. The other line scaling up is the Supply of Labour(or the Labour Market) which would always want to be paid more. The point they meet at is usually how much they would be paid without a minimum wage, and when the minimum wage is set we see (in the x-axis), that the amount of laborers available is higher than the ones demanded by industries which means higher unemployment.  Nepal's unemployment rate for 2022 was 11.12% and raising the minimum wage wouldn't change any more of that. Higher the minimum wage the more the gap between quantity demanded and supplied(or more unemployment).

To conclude, the issues of raising the minimum wage might sound harsh and the advantages too minimal, it is just a route change against the inflation rate and change in the price level of Nepali Rupees, and the potential of causing more inflation due to the change or more unemployment is minimal if straight out impossible.