Effect of Minimum Wage on Demand and Supply

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In order to safeguard specific workers in low-paid, susceptible employments the minimum wage policy had been implemented by the South African government to provide assurance to these workers of a basic subsistence income. In hindsight the government saw the wage ‘floor’ as a tool to efficiently support the working poor and eradicate their poverty while facilitating the rearrangement of income in an uneven society. In light of the recent strikes brought forward by the farmworkers in the Western Cape that ultimately form part of the agricultural sector, Agricultural Minister Mildred Olifant has implemented a minimum wage policy
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Figure 2 illustrates the effect of the decrease in demand of labour due to the increase in the minimum wage, and accordingly how’s how supply increases in order to reach equilibrium at this point. The law of demand states that an increase in price results in a decrease; the law of supply states that a increase in price results in an increase in supply. These laws directly relate to what would happen in the agricultural industry with regards to employment and labour when the minimum wage increases, in the short run and ultimately the long run.

Wage Rate
Wage Rate
Supply After
Supply After
Supply Before
Supply Before

Equilibrium Wage After
Equilibrium Wage After

Equilibrium Wage Before
Equilibrium Wage Before

Demand
Demand

Quantity of Labour
Quantity of Labour

Figure 2 : Demand and Supply of Labour in the short run
Farmers will eventually suffer in the short and long run regarding the total revenue that they receive and experience lower profits. Dire consequences could arise as some farmers will have no work force and large amounts of land consequently forcing them to abandon fertile land and go elsewhere; while some small scale farms suffer immensely and required to shut down. Primarily in the short run farmers would make structural adaptations and include mechanisation and consolidation to become efficient and cost effective. With technology not being readily available and
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