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

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In a perfectly competitive labour market , wages of labour are decided by the factor of demand and supply of labours in the market .Perfectly competitive labour market have characteristics like there are a number of firms which are offering identical jobs and there are many labours available with same skill set. In this scenario thefirm is wage taker it means that wages will be defined by the firm and it will affect the rate of labour in the industry . The increase in wage rates will increase the input of labours in the industry and vice- versa. If the minimum wage rate is defined then it increases the umemployment in the market as if there is no minimum wage then some people would work at the lower wage rate than what is prevailing in the industry and the employers also hire some workers at low wages if needed but with the setting of minimum wage rate it increases the unemployment rate as now employers would not hire workers as hiring at a minimum wage defined now would increase their manpower cost.

Rahul Sunny answered 2 years ago

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