Question

1. Consider a low-wage labor market. Workers in this market are not presently covered by the minimum wage. But the government is still considering implementing such legislation. If implemented, this law would require employers in the market to pay workers a $5 hourly wage. Suppose all workers in the market are equally productive, the current market clearing wage is $4 per hour., and that at this market- clearing wage there are 600 employed workers. Further suppose that under the minimum wage legislation, only 500 workers would be employed and 300 workers would be unemployed. Finally, assume that the market demand and supply curves are linear and that the market reservation wage, the lowest wage at which any worker would be willing to work in the market, is $2. Compute dollar value of the impact of the policy on employers, workers and society as a whole

Answer 1

Answer In the market to pay workers a 45 howlly unge The current market cleasing wage is a 4 pee 1 hour. Market - Clearing place there are Gco Unemploed history The minimum wage legislaten only 500 workers. Employed and 300 workers would be un employed The I lowest wage at which any worker would be willing to work in market is $2. The rectongle with sides equal to the increale.. 85. 84 e - new Employment level soo and a triangle with a height Equal to To reage increase 81 D IEZ

the no.. A bare worken equal to demanded reduction in - 600-500 =100 Adding the two areas together.. 1(800) + (1)(100)/2 550 500 workers surplus who reman Employed in market Each equal to 1 increase in wage that gain ex receive Their total increase in Surplus is (1) (50) - 500 lose of 100 workers whose lose their loks as a result of minimum wage obviously lose surplus. Their arrocer surplus can be computed at. Cos) (%4-82) = 31 The total loss of surplus as Cu(10) = 100. A losing au of Samings to sach have they are un employed. But gaming leisure that has an ancage haully wage 2.5o.

250 - Ois (174) The total los in suples to C4.00 -9.50) (160) - 150 200 workers are incluced by the highet ware to Eriter the market The total impact of Scciely as a whole minimum woce on Equall # 500 - 100 - 550. =-150 -4-150