In the labour market, workers would like to receive higher wages and firms would like to pay lower wagesa. suppose that workers succeed in having a minimum wage established above the equilibrium wage. what will happen to the number of workers employed compared to the original equilibrium?b. suppose that firms succeed in having a maximum wage established below the equilibrium wage. what will happen to the number of workers employed compared to the original equilibrium?

Question
Asked Sep 29, 2019

In the labour market, workers would like to receive higher wages and firms would like to pay lower wages

a. suppose that workers succeed in having a minimum wage established above the equilibrium wage. what will happen to the number of workers employed compared to the original equilibrium?

b. suppose that firms succeed in having a maximum wage established below the equilibrium wage. what will happen to the number of workers employed compared to the original equilibrium?

check_circleExpert Solution
Step 1

a.

Initially, the labor market is in equilibrium at point E, as shown in figure 1. Here, equilibrium wage is W and number of workers employed is L

 

 

Step 2

Now, as depicted in the figure 1, minimum wage establishment above the equilibrium wage will create excess labor supply in the economy. As at higher wage, more and more workers would like to work. But firms will not employ all the workers. Due to this, employment of workers will fall compared to the original equilibrium. As depicted in the figure, number of employed workers will fall from L to L* when equilibrium wage rises from W to W*.

 

 

Wage
Labour Supply
Excess Labour
W
E
Labour Demand
'Labour
L L
Figure 1
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Wage Labour Supply Excess Labour W E Labour Demand 'Labour L L Figure 1

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Step 3

b.

Initially, the labor market is in equilibrium at point F, as shown in figure...

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