Economics - Minimum wages
Minimum wages is a price floor set by the government. This regulation makes hiring labour below a specified wage illegal. The governments` intention by setting this price floor is to elevate the wages of unskilled and low-paid workers and lift them from poverty. But there is disagreement among economists whether this legislation really benefits the pour in the long run. Some actually means that minimum wages causes unemployment.In the labour market the employers will have some monopoly power over the unskilled workers, and they will always try to decrease the wages (profit maximizing firms). Pour people are better of with an underpaid job than no job, and this makes them vulnerable for being exploited by employers. When the government set in a minimum wage they prevent firms from exploiting the pour and low-paid workers. This moral aspect is the main argument for the proponents of minimum wages. However, this regulation can result in firms moving their production to other countries who have no minimum wage legislation. You can see this happening to many large firms like Nike and Gap. And it is not good fore the labour market in the UK. There is another dilemma. When the wages rise, youths find it tempting to quit school and s
There is however a market where the minimum wages do not necessarily create unemployment even when wages are increased. When employees get paid better they feel obligation towards the firm, they work harder and more efficient. The net effect of minimum wages is a raise in wages from W to Wm, and an increase in employed labour from L to Lm. Before the minimum wage is put through the firm would hire L workers at a wage W. If people cost less to employ, more of them will be employed. If it exceeds 1, earnings will fall, if it is less than 1 earnings will rise. Many economists think that it would be better to have free labour market. More people are willing to work, when wage has risen. The minimum wage regulation protects the low-paid workers from being exploited. A minimum wage regulation will increase the real wages in the labour market, as higher paid workers try to raise their wages to keep the same differentials with the lowest paid workers. We can see from the graph that the equilibrium is where the demand and supply of labour intersect; employment is (L0); and involuntary unemployment is zero since extra units of labour would only be willing to work if the wage were higher. The amount of unemployment in the labour market is now (Sm-Dm) units. But if the minimum wage is set above the equilibrium wage, the minimum wage is in conflict with the market force and does have some effects on the labour market. Maybe it is more profitable to change labour for capital or more skilled labour. The basic link between wage and jobs is clear.
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