The Effects Of Minimum Wage From A Microeconomic Perspective

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The Effects Of Minimum Wage From A Microeconomic Perspective Nathaniel Fishburne Embry-Riddle Aeronautical University Introduction The first minimum wage law was implemented in New Zealand and Australia in the late 1900s. In 1940s, George J. Stigler founded the first standard model of minimum wage. The model predicts that the minimum wage system. It set above equilibrium wage level, would create unemployment because some previously employed labors lose their jobs while some find it is not worthwhile to work at the minimum wage that is above competitive wage (Stigler, 1946, p. 361). Ehrenberg and Smith define the minimum wage as a policy that compels the employers to increase wages paid to all low-wage employees (2006). According to Lee, minimum wage is the minimum level of payment recognized by law for work performed (Lee, 2002, p.1). However, the fact remains that a minimum wage has social and economic effects, the dynamics that will be discussed in this paper. Till now, more than 95% of all countries around the globe have adapted minimum wage as their primary wage policy. The objective of minimum wage is to allocate income without rescinding the jobs of low paid employees. Nevertheless, there is no agreement about the effect of minimum wage on employment. A large number of studies on the impact of minimum wage on unemployment suggest different findings and result on ho minimum wage affect the level of employment in both developed countries and developing
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