How do minimum wages affect wages, employment, and unemployment? In a competitive labor market, the demand for workers is given as QD=10,000-100W, and the supply of workers is given as QS=2,000+1,900W, where Q is the quantity of workers employed and W is the hourly wage. What is the initial equilibrium wage and employment level? Suppose that the government decides that \$5 per hour is the minimum allowable wage in any market. How would this new minimum wage alter this market? What would the new employment level be? What would happen to total payments to labor? Would there be any excess supply of labor? If so, how much?

Question
25 views

How do minimum wages affect wages, employment, and unemployment? In a competitive labor market, the demand for workers is given as QD=10,000-100W, and the supply of workers is given as QS=2,000+1,900W, where Q is the quantity of workers employed and W is the hourly wage. What is the initial equilibrium wage and employment level? Suppose that the government decides that \$5 per hour is the minimum allowable wage in any market. How would this new minimum wage alter this market? What would the new employment level be? What would happen to total payments to labor? Would there be any excess supply of labor? If so, how much?

check_circle

Step 1

The employers legally pay a minimum wage to the workers which is the lowest remuneration that the workers receive. Minimum wage is kind of a price floor below which the workers will not be willing to provide their services.

Minimum wage will surly increase the wage rate as it is generally introduced to help the workers. With the increase in wage, the employers will demand for fewer laborers which will definitely reduce the employment. There will be less people employed and more of unemployment in the market due to minimum wage.

Step 2

The equilibrium wage and the level of employment in the competitive labor market can be found out be equating quantity demanded and quantity supplied of laborers as follows.

Step 3

Thus, the initial equilibrium Wage and Level of employment...

Want to see the full answer?

See Solution

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in