1. Proponents of the minimum wage argue that it will not reduce employment. Opponents argue the opposite. a. What factor determines who is correct in this debate, and under what condition will each side be correct? Use a diagram to explain your answer.
The minimum wage rate is the government determined minimum wage which the employer must provide to an employee for making use of the labor power. Thus, the minimum wage is similar to that of a price floor which is the government determined minimum price that should be provided to get the commodity from the seller. The minimum wage becomes effective when it is determined above the equilibrium market wage rate. This means that the firms will be forced to pay higher wages than the market wages and since it increases the cost of production of the firm, it will reduce the demand for labor by the employers. This means that the employment will be reduced and the unemployment will increase as the quantity of labor supplied will increase in the economy.
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