Question

A. Minimum Wage The non-economist’s view of the minimum wage seems to be that it forces greedy employers pay poor workers more money, making all workers better off. The “conventional” economic view of an increase in the minimum wage is that, as with most public policies, there are winners (those unskilled workers who keep their jobs and earn more) and losers (those workers who lose their jobs). What is the “unconventional” view and how does it alter that calculus of gains and losses?

Answer 1

The unconventional view is that keeping the supply as constant or not investing any amount in the supply side will not have any effect on the real wage of the employee. But an increase in the minimum wage will increase the price of goods in the same proportion and nullify all the gains. There will be no gainer or looser in this case.

For example, there is an economy whose output is fixed at 1000 units of corn and that can't be increased. There are 100 employees used in production and they are the only population in the economy that means they are the one who consumes corn. Right now they earn $100 each and demand 100 units of corn.

If their minimum wages are increased by 100% i.e. $200. the supply will remain the same. The nominal value of good will change to $200 because of increased income but the purchasing power will be the same.

So, as per the unconventional view, there are no winner or losers in a minimum wage increase, the price of the good will increase at the same proportion and nullify all the increased wages and leave everyone in the same position as before.