In the labour market for carpenters, the current market clearing wage rate is R800 per day....

In the labour market for carpenters, the current market clearing wage rate is R800 per day. With the aid of a diagram, discuss the welfare effects of government intervention in the form of legislation that sets the minimum wage rate for carpenter at R 1000 per day.
Please assist. It's for 20 MARKS

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Expert Solution

Below is the labour market for carpenters. With labor demand and labor supply curves meeting at E, the current market clearing wage rate is R800 per day. A legislation that sets the minimum wage rate for carpenter at R1000 per day brings unemployment because the labor units demanded are L1 while labor units supplied are L2. Hence L2-L1 units of labor are unemployed or surplus.

This is a market for low-skilled workers. Hence the welfare effects are summarized below

Rahul Sunny answered 1 year ago

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