When Should A Higher Minimum Wage Law Designed To Help Low-Income Workers?

UNIT 2 WRITTEN ASSIGNMENT

Analyze what happens when a higher minimum wage is enacted (raising a price floor on the price of labor). Will the number of workers hired change? Why? What might be an unintended consequence of a higher minimum wage law designed to help low-income workers?

Enacting a minimum wage, or setting a price floor, above the market equilibrium price can impact the labor market. The supplier will not sell labor below the designated price floor; and, businesses are mandated to pay their workers at least the price floor established by the government. If the minimum wage is set above the market equilibrium price, the number of people seeking for a job would be greater than the jobs available in the market. In other words, there would be a surplus of labor.

When the price floor is set above the market equilibrium price the costs of production will raise thus increasing the price of goods or services. In order to reduce the costs of production, businesses would have to hire fewer workers and this would leave a surplus of workers in the market. Setting the price floor does not create more jobs; instead, the surplus of laborers creates unemployment.

Raising the minimum wage sounds ideal if the workers would keep their jobs. Another consequence due to the price floor is that businesses reduce workers’ benefits, cut working hours, eliminate training, and put out of work to their employees. Finally, a small business might be driven into bankruptcy since they won’t afford to pay the wages established by the government. When small businesses fail, big corporations are the only winners because the can afford to pay their workers above the market equilibrium