Question

Is the minimum wage a living wage? Under what circumstances would a minimum wage be a nonbinding price floor? Under what circumstances would a living wage be a binding price floor? Should the government enforce a minimum wage? Should the government implement a living wage?

Answer 1

Ans. Living wage is the minimum wage required to afford food, clothing, housing etc. i.e. basic needs and not just the biological needs. But minimum wage is different intge sense that government sets this wage and even after earning this, the person may have to depend upon the government welfare schemes. Although in economic both of these are price floors and thus, create excess supply pf labour leading to unemployment.

Minimum wage will be non binding if the market equilibrium wages are above this floor already.

Minimum wage will be binding price floor if equilibrium wage in the market is below the price floor.

Government should not enforce a minimum wage because it leads to an excess supply of labour in the market leading to deadweight loss and unemployment.

The impact of living wage is the same because it also acts like a price floor which creates deadweight losses and leads to unemployment.

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