Chapter 13, Problem 1DQ

To determine

If teenagers are better off when the minimum wage is more than their earned wages. Will it also make others unemployed?

Explanation of Solution

No, teenagers are not better off when the minimum wage increases their wage because of the following reasons:

• Due to minimum wage, the unskilled and casual labors lose their job. On the other hand, teenagers are able to get higher wages.

• When there is an increase in the minimum wage, the firms look for experienced people who do not need any training and can justify their wages.

• When the minimum wage increases, the price of the labor also increases. The increase in the price of labor makes the demand for labor to decrease.

• When the demand for labor decreases, then the level of unemployment increase. As a result, the employed teenagers start losing their job because they are the ones who are employed at lowest wages and are inexperienced and untrained.

• So, any change in the minimum wage affects teenagers’ job, as firms start to fire them. Hence, teenagers lose their job when the minimum wage increases.

• The increase in minimum wage also causes discrimination based on race and gender. Not only this, it also makes almost impossible for the poor and minority group people to get a job.

Hence, the teenagers are worse off when the minimum wage increases.

Economics Concept Introduction

Concept introduction:

Law of demand in the labor market:

Like other commodities, the demand for labor decreases when the price of labor increases and the demand for labor increases when the price of labor decreases. If the minimum wage increases, then the price of labor increases.

Minimum wage:

Minimum wage is the lowest wage that is offered by the employer to the worker. It is also known as the reservation wage. Workers cannot be hired below this wage.