Question

In labor markets, supply of labor comes from individuals and demand for labor comes from businesses. Recently, there have been pushes across the United States to raise the minimum wage, which has some labor market effects. What are the effects of raising the minimum wage? It is more complex than simply producers lose and workers gain. Who are the winners and who are the losers, and what exactly do they win and lose? To what extent does the policy change achieve its goals?

Answer 1

Ans ) Labour demand in the market is derived demand as it is derived from goods demanded by the consumer in the economy. If the government will implement the law of increasing the minimum wage in the market for labour. As a result the minimum wage will rise.

The effects are :

1) the price of the goods produced by these firms will increase because of increase in the labour wage.

2) the power labour in bargaining will rise as now they will demand the rise in wage from the entrepreneur.

3) The demand of labour will be less in the firm after increasing wage rate as now less labour will be demanded.

By increasing wage rate the price will go up in the economy, the demand of the products will decrease as a result the unemployment rate will increase.

The mark up value ( value after deducting wage from profit) will decrease as a result the firm will now employed less labour to earn more profit. In this the gainers are labours because the bargaining power of labour will increase.

The policy change will achieve its goal to only some extent as many firm will avoid to use more labour to increase their profit , the demand of the labour will increase. After the policy the price of goods will increase as a result the real purchasing power will be the same for the labour. But the unemployment rate will be more then before.