Question

What is your opinion of the minimum wage? Is it too high or too low? Explain. If the current minimum wage is above what the market would ordinarily bear (equilibrium wage in that market), and there is a proposal to raise the wage, explain the economic effects of the proposal on wages, employment, product prices and costs of the products the minimum wage labor produces (a graph may be useful here). How important is the assumption of the proposed wage being higher than what the market would bear and why?

I need help with the graph and the reasoning...

Answer 1

Minimum wage is wrong.Small business owners bear the impact and so as a consequence they reduce their staff .The cost of minimum wage will be borne by the consumers as a trickle down effect. Small businesses might also close down.Minimum wage is not a livable wage.By raising the minimum wage,skilled labor lose the incentive to work or to improve themselves.Unskilled labor do not have a place in the economy.

If minimum wage is too high, cost will increase which the employers will have to bear.This will increase the price and as a result exports will suffer.Employment level will fall.Again low wages will restrict consumption.

If the federal minimum wage is increased , wages of laborers will go up and consumption will increases.Consumers will spend more and the economy will grow.A moderate increase in wages will improve the productivity of laborers.Employees will be less absent for work.If minimum wage is increases cost of employers will increase which will be passed to the consumers.So price of products will increase..Exports will be less when prices rise and so employment level of workers will fall.

In the fig We is the wage determined by the market forces of demand and supply . If wage is raised to be above We,there will be surplus labor than the firm can hire. If wage is below We, there will be excess demand and more laborers will be employed.

If the proposed wage is higher than market rate , there will be surplus labor than the firm can hire.So there will be unemployment in the industry.In order to get employment wages should be lowered.