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2011-08-25T13:08:00.000-07:00

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minimum wage

2011-08-24T12:15:00.000-07:00

As shown in the graph above, setting an artificial wage for labor has two effects.

1. The first effect is that it moves the demand for labor back on the demand curve which results in higher unemployment numbers.
2. The second effect is that the supply for labor goes up which also increases unemployment.

The two effects just shown are generally seen as negative so why would anyone want a minimum wage?
The logic behind a minimum wage is that it increases the living standard for those who are employed. Imagine that at equilibrium the wage was $5 and the amount of people employed was 10. If we set an artificial minimum wage at say $6 those who are working will be payed more. The drawback is that because the demand for labor went down (businesses can afford fewer workers now) there are now only 7 people working. So for the few who kept their jobs the minimum wage was a positive thing but now there are 3 more unemployed people who are a drain on the economy because businesses can't afford to hire them so the government now has to pay them unemployment.

The final implication of a minimum wage law is that prices will eventually rise to make up for the added money that businesses need to be paying their workers. This will in effect make it as if there never was a minimum wage increase because the worker that once benefited from the minimum wage law now has to pay more for the goods they want to buy as a result of that same law.

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minimum wage