"Assume that a binding minimum wage does NOT shift the labour demand for unskilled labour. If...

"Assume that a binding minimum wage does NOT shift the labour demand for unskilled labour. If it is fairly easy to replace workers with machinery, then a rise in minimum wage will lead to an increase in the total wage bill (total revenue of all workers), all else equal." Do you agree? For full marks, you need to supply a graph.

(a) A graph carries 2.5 marks. The usual deductions for missing and incorrect labels apply.

(b) An explanation carries 2.5 marks. Your explanation must clearly relate to the relevant features of your graph - in other words, it must support your answer.

Solutions

Expert Solution

A binding minimum wage will not shift the labour demand curve, but will cause a leftward movement along the curve. The quantity demanded of unskilled labourers will fall.

If it is easy to replace workers with machinery, then a rise in the minimum wage will actually decrease the total wage bill, because firms will now hire fewer workers.

Firms will replace the workers with machinery, to save on costs.

Therefore, the given statement is false.

---

A binding minimum wage is always kept above equilibrium.

In the given diagram, total wage bill with lower minimum wage is rectangle OWBQ.

After higher minimum wage is set, this wage bill goes down, and is now rectangle OW"AQ".

As is visible, the old wage bill OWBQ is much higher than the new wage bill OW"AQ".

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

consider a competitive labour market.the likely consequence of a binding minimum wage in the labour market...

consider a competitive labour market.the likely consequence of a binding minimum wage in the labour market is

15. Suppose the wage of unskilled workers is equal to the minimum wage. If a tax...

15. Suppose the wage of unskilled workers is equal to the minimum wage. If a tax on labor is levied on _____, the presence of the minimum wage _____. a. workers; does not affect the tax burden of workers b. workers; reduces the tax burden of workers c. firms; reduces the tax burden of firms d. firms; does not affect the tax burden of firms

Suppose that the market for unskilled labour in Canada is such that the wage (price of labor) and employment (quantity of labor) are determined by supply and demand.

Suppose that the market for unskilled labour in Canada is such that the wage (price of labor) and employment (quantity of labor) are determined by supply and demand. Suppose further that the Canadian government, concerned by the low revenues on the market, decides to introduce a minimum wage. Suppose that initially the equilibrium wage is CAD 1000 and the equilibrium quantity of unskilled workers is 1,000,000 and that the government decides to impose a minimum wage of CAD 1200.(a) Knowing...

Consider the market for unskilled labour where the equilibrium wage rate is $6 per hour. A....

Consider the market for unskilled labour where the equilibrium wage rate is $6 per hour. A. Suppose the government introduces a price floor of $5 on the market wage. Is price floor binding in this case? What effects will this have on the market outcome and welfare? B. Now suppose the government introduces a price floor of $7 on the market wage. Is price floor binding in this case? What effects will this have on the market outcome and welfare?...

1. What is the effect of a binding minimum wage? 2. There is a supply and...

1. What is the effect of a binding minimum wage? 2. There is a supply and a demand curve, with three prices, above at and below equilibrium. If one of those prices is imposed by the government, what happens/ 3. Got a supply and demand curve, which areas make up economic surplus? 4. What is marginal utility? 5. What is the utility maximization condition? Please answer all 5 questions, with example or a scenario that can relate to these questions...

Draw a picture that shows the following: the imposition of a binding minimum wage in a...

Draw a picture that shows the following: the imposition of a binding minimum wage in a monopsony results in an increase in employment. In addition, give a brief intuitive explanation for why you might expect this to occur.

Consider the case where the demand curve and supply curve for unskilled labour are given in...

Consider the case where the demand curve and supply curve for unskilled labour are given in the following table: (1) Wage Rate (/hour) (2) Wage Rate2 (/hour) (3) Q of Labour Demanded (hrs/week) (4) Wage Rate2 (/hour) (5) Q of Labour Supplied (hrs/week) 9.5 1000 1900 9 1200 1800 8.5 1400 1700 8 1600 1600 7.5 1800 1500 7 2000 1400 6.5 2200 1300 1. What is the equilibrium wage rate? 2. What is the quantity of labour hours hired...

For each of the following cases, determine whether the economy’s labour demand for unskilled workers will...

For each of the following cases, determine whether the economy’s labour demand for unskilled workers will decrease or increase: a) The cross-elasticity of factor demand between unskilled and skilled workers is –0.3, and government implements a policy that results in an increase in demand for skilled workers. b) The cross-elasticity of factor demand between unskilled workers and capital is 1, and government implements a policy that results in an increase in the demand for capital. c) The cross-elasticity of factor...

In 2012, many unskilled workers in the United States earned the federal minimum wage of $7.25...

In 2012, many unskilled workers in the United States earned the federal minimum wage of $7.25 per hour. By contrast, average earnings in 2012 were about $28.00 per hour, and certain highly skilled professionals, such as doctors and lawyers, earned $140.00 or more per hour. Instructions: In parts a, c, and d, round your answers to 2 decimal places. In part b, enter your answers as whole numbers . a. If we assume that wage differences are caused solely by...

In 2018, many unskilled workers in the United States earned the federal minimum wage of $7.25...

In 2018, many unskilled workers in the United States earned the federal minimum wage of $7.25 per hour. By contrast, average earnings in 2018 were about $27 per hour, and certain highly skilled professionals, such as doctors and lawyers, earned $100 or more per hour. Instructions: In part a, round your answers to 2 decimal places. For all other parts, enter your answers as a whole number unless otherwise indicated. a. If we assume that wage differences are caused solely...

Subjects