Nut Island Effect plays a vital role in influencing the wages of employees. It is the reduction in wages that results from a rise in the minimum wage. Minimum wage regulations are meant to both lift up workers and promote competitive pricing for businesses. Therefore, minimum wage increases may lead to greater competition among employers for their existing workforce. To attract workers’ wages will decline, usually coupled with reduced benefits.
Many businesses pay their employees regularly, but a “nut island” effect gets created by workers waiting for their salary. It is because they were left with inadequate money during the interim period. The formation of “the nut” becomes an added difficulty to the firm paying the salaries since its managers have to figure out how to raise funds to cover it.