Question

Under what conditions might an increase in the  minimum wage not reduce the number of low-wage jobs? How much of a job loss is acceptable?

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Answer 1

CONDITIONS FOR MINIMUM WAGE:

The conditions for the minimum wages is as follows:

MINIMUM WAGE:

The minimum wage states that " legislation is a step by the government to ensure minimum wage for worker.

A minimum wage increases the quality of labor supplied but reduces the quality demanded.

thus, while some workers end up with higher wages, others remain or become jobless.

THE IMPACT OF THE INCREASE OF MINIMUM WAGE ON LABOR MARKET:

• The wage rate under the absence of legislation is We. At this wage rate,Qe amount of labors are hired as determined by the equilibrium condition of equality of labor demand with labor supply (point E)
• By the legislation wage rate is increased to Wm.
• At the higher wage rate the demand for labor decreases so that (Qe,Qd) laborers lose their jobs. Also (Qs-Qe) laborers have increased their supply because of an increase in wage rate .
• However, they also remain unemployed. however Qd existing workers retain jobs at the higher wage rate.
• Thus, a legal minimum wage entails a trade-off some workers end up better off while others end up worse off.

MINIMUM WAGES AND REDUCTION IN LOW WAGE JOBS:

An increase in minimum wage rate will not lead of jobs if labor demand increases due to growth of the economy. this is illustrated in given below figure.

IMPACT OF THE ECONOMIC GROWTH AND MINIMUM WAGES OF LABOR:

• The initial labor market demand and supply curves are DD and SS initial labor market equilibrium is at point E,where q quality of labor is chosen .
• If minimum wages legislation is enacted. then labor demand will fall to Cd.
• However, if labor demand increases due to growth of the economy to DD'.
• Original labor demand is restored at point E. Where the new demand curve cuts the Wm line.

ACCEPTABLE REDUCTION IN NUMBER OF LOW WAGE JOB:

• The minimum wage legislation is devised to attain income equality in order to benefit the least able members of the work force .
• Thus, the number of low wage jobs that must be sacrificed will depend on the relative distribution of the gainers and the losers, subservient to the equality principle.