Question

Discuss how increasing the minimum wage affects demand and supply for labor. should be left to market forces or influenced by the government

Answer 1

The rise in the minimum wage results in a decline in the rates of employment: employment falls from 32,000 to 24,000. Labour is becoming more expensive to businesses, and they'll want to spend fewer hours. Around the same time, higher minimum wage means more workers are searching for jobs. The increase in the amount of labor people want to buy, and the decline in the amount of labor required by businesses, all help to increase unemployment.

Minimum wage policies increase labor rates for companies. That is for most of them already the biggest budget item. If they are required by the government to pay more per job they employ less employees to keep the overall labor costs the same. This raises the jobless rate. This hits low-wage employees the hardest, as they now have to fight for fewer jobs. Many smaller businesses may not be able to do business with fewer employees. Instead they could be forced to declare bankruptcy.

Wages cannot be so high that they reduce a company's ability to keep labor costs low during a recession. The government will find the sweet spot between protecting the workforce and allowing companies the flexibility they need to stay competitive in setting a minimum wage.