Homework Clinic
Social Science Clinic => Economics => Macroeconomics => Topic started by: M1ch3a on Nov 23, 2022
-
Minimum Wage Laws
The graph shows the supply for labor (S) and the demand for labor (D).
Assume that P1=$1.50, P2=$4.50, P3=$6.75, P4=$9.50, P5=$15.00, Q1=310, Q2=610, and Q3=820. Suppose the government passes a law that sets the minimum wage at $9.50 an hour. How many people are laid off? How many people are unemployed new entrants?
◦ 510 laid off, 300 unemployed new entrants
◦ 510 laid off, 210 unemployed new entrants
◦ 300 laid off, 510 unemployed new entrants
◦ 300 laid off, 210 unemployed new entrants
-
300 laid off, 210 unemployed new entrants
Before the minimum wage legislation is passed, equilibrium occurs where the supply curve (S) intersects the demand curve (D), at a price of P3=$6.75and a quantity of Q2=610.
After legislation is passed that sets the minimum wage to P4=$9.50, Q1=310 workers are demanded and Q3=820 workers are supplied, so there is a surplus of workers.
Remember, in the labor market, workers are the suppliers of labor and firms are the demanders of labor.
Because Q2=610 people worked before the minimum wage is set and Q1=310 people are able to find jobs after the minimum wage is set, then 610-310 = 300 workers are laid off.
Because Q2=610 people worked before the minimum wage is set and Q3=820 people are willing to work after the minimum wage is set, then 820-610 = 210 workers are unemployed new entrants to the market. They were not willing to work at P3=$6.75, but are willing to work at P4=$9.50, but they are unable to find a job because of the surplus of workers.