Suppose the government wants to help workers in a competitive labour market. Illustrate and explain how...

Suppose the government wants to help workers in a competitive labour market. Illustrate and explain how the government could do this by: a) imposing a minimum wage and b) by providing firms with a subsidy to hire workers. All else equal, which will have the greater impact on affected workers’ wage: a $2:00 increase in the minimum wage or a $2:00 subsidy?

Expert Solution

Minimum wage has maximum impact as it is form of direct benefits transfer and creates higher disposable incomes creating larger pie of aggregate consumption and expenditure and hence labor becokes more productive and competitive.

However if subsidies to organisation are offered to hire more workers, it creates market distortion as workers may be hired more but minimum wage can decrease or be not commensurately offered. Also firms may chose to soend less on hiring and nore on development which again creates lack of dseried effect and hence is not recommended for labor productivity and competitiveness.

Rahul Sunny answered 2 years ago

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