In theory, when an increase in the minimum wage increases the cost of low-wage workers, businesses should want to hire fewer workers, but in reality this basic theory could be wrong according to Plumer B. (2013) While some studies have found a link between a higher minimum wage and a higher level of unemployment, many others, such as a recent paper from the University of Berkeley which exploited differences between states, did not find a link between a higher minimum wage and a higher unemployment rate. John Schmitt of the Center for Economic and Policy Research explores other possible reasons why a modest increase in the minimum wage might not have a significant impact on employment levels. According to his study, instead of hiring fewer workers, labor markets may respond in the following ways: • Employers may cut benefits, hours or training. • Employers can lower the wages of more experienced workers by delaying or limiting salary increases or bonuses. • Employers can become more efficient.• Businesses can raise the prices of their products or services.• Businesses can simply make do with less profit by absorbing the increased cost of labor.• Businesses can save on labor costs, leading to lower employee turnover.• Workers may respond by voluntarily working harder. Schmitt concludes that how businesses respond to the increase depends on a complex set of circumstances that economists cannot fully grasp or explain, which could explain why economists often struggle to establish a clear link between a higher minimum wage and higher unemployment.INTRODUCTIONThe minimum wage was established under the Fair Labor Standards Act of 1938. Overall, the minimum wage was established to help improve the standard of living of low-skilled workers, let it be the minimum...... middle of paper .. ...I believe the basic theory is still valid. Even if the employer does not reduce its demand for labor because another theory states that the labor category is inelastic, I believe the employer will reduce a labor expenditure that may have a direct or indirect impact on employees in order to compensate for the increase in salaries. We've been told that nothing comes for free, so why wouldn't employers change their behavior by hiring fewer employees or reducing labor expenses. In my opinion if they didn't react at all they would be giving free money to their employees and we all know there is no such thing as a free lunch especially in today's economy, so why start believing in it now. Put all theories aside and evaluate the current situation. The minimum wage increases unemployment, but the magnitude depends on whether the increase is small or large..