minimum wages

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Recommended: The positive or negative effects of minimum wage

Minimum wages is a legality that is imposes by the government in the labour market which means employers are not allowed to pay the employees under the wage impose by the government. This is happen to the workers in Minionland where the minionion government announced the minimum wages to be increases to M$900 per month due to the increase of living cost of the country. The new rate of wage represents 18.8% increase that affecting 128500 low-skilled workers in Minionland .
Diagram below shows the supply and demand curve of labor market before the M$900 new minimum wage impose by the government.

Diagram 1

Diagram 1 is made based on the assumption that the minimum wages before the increase is M$730.80 based on 18.8% increase of average new wage and the 128500 of low-skilled workers are remains constant and at equilibrium. The equilibrium wage is marked as P0
The demand curve represents the firms that employ the workers while the supply curve represents the labour in Minionland. When the minimum wage is imposed by minionion government it create surplus of low-skilled workers. Surplus of low-skilled workers happened when quantity supply Qs1 is greater than quantity demand Qd1. This surplus of workers is also known as unemployment.
Furthermore, the producer surplus is greater than consumer surplus. Producer surplus is the total profit made by the employees from getting employ while consumer surplus is the total profit made by hiring the workers. Graphically, shaded area A is the consumer’s surplus which is smaller than producer’s surplus that is shaded area B.
On the other hand, imposition of minimum wages creates deadweight loss. Deadweight loss is net loss to society because of minimum wages. It is shown by shaded a...

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...eserves. This will in result in low productivity of the workers or even worst, union strike. This can be preventing by collective bargaining made between workers union and the company. They will decide between themselves how much they should be paid depend on work hour by the company. However, bureaucratic between union and company can be very tedious.
In conclusion, which policy is better depend on several factor such as inflation, increase in living cost, numbers of low and high skilled workers. Based on this situation, I prefer minimum wages policy set up by government of minionland. This is because they have the reason to increase the minimum wages which is increasing average living cost. Although, they are sure the effect on unemployment rate will be mild, they will create a competitive labour market for their citizen which is a good things in a economic sense.

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