Question

What kind of price control in minimum wage? What is the rationale for imposing the minimum wage? What are the “economic” problems created by this government policy of setting a minimum wage? Show graphs to support your argument.

Also, state what is the federal and state minimum wage in US and NY. Is this the same as livable wage?c

Answer 1

Minimum wage is a type of price floor which sets the minimum wages that should be offered to workers. Wages below this level are not accepted by law and will count as exploitation.

The rationale behind imposing minimum wage is to gaurantee a minimum wage to the workers for their work done. In the absence of this legal binding price floor, firms can exploit workers by providing them with low wages and exploiting them.

The economic problem created with the minimum wage is the creation of deadweight loss in the form of unemployed workers. When the government mandates firms to give a minimum amount of wages to workers which is more than the current equilibrium wage rate, it will make employers hire less labor so as to control their labor costs. This reduces demand for labor and thus increases unemployment.

Minimum wage in US = $7.25 per hour (federal)

Minimum wage in NY = $15 per hour (state)

Yes, it tries to be close to the livable wage.