1. How does and increase or reduction in wages affect the amount that someone wants to...

1. How does and increase or reduction in wages affect the amount that someone wants to work?

Expert Solution

1. If the government imposes minimum wage, the firms try to employ less workers as they tend to decrease the number of required labour hours eventually the number of workers required.

2. This phenomenon causes decrease in employment which will definitely be a drawback to the concerned economy.

3. For e.g 1200 workers find employment at a wage of $5 but when the minimum wage increase to $6, the firms tend to recruit only say 800-1000 workers as per their requirement where remaining 200-400 workers respectively will be unemployed.

4. At lower wage levels, firms will be willing to hire larger group of workers which will increase the rate of employment. This kind of wage is known as nominal wage which are paid in hours.

5. Substantially, reduction in real minimum wage will be taken into account in order to reduce unemployment. (Real minimum wage takes into account the phenomenon of inflation where Nominal wage doesn't take inflation into account.)

Rahul Sunny answered 2 years ago

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