What is the impact of law on employment?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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From an economic point of view, laws tend to have a negative impact on employment.  Economists argue that laws tend to reduce the number of jobs that are available.  Economists say that the law tends to impose extra costs on employers.  This can be seen, for example, in regulations regarding worker’s compensation and on those regarding minimum wages. 

In the United States, state governments typically require businesses to buy insurance that will pay workers’ medical bills and their lost wages if they are injured while working.  Because employers have to pay these insurance premiums, they face added costs every time that they hire a new employee.  This, economists say, reduces their willingness to hire workers.  This impact is felt even more strongly when the government imposes minimum wage laws.  When the government does this, it requires businesses to pay more than they ordinarily would for labor.  Businesses can, of course, pass these costs on to their customers, but they are often unwilling to do this for fear of losing business.  Therefore, economists say, they tend to hire fewer workers than they would if there were not minimum wage.

Thus, to economists at least, laws tend to make it more expensive to hire people, thus causing businesses to reduce hiring.

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