Overview
As mentioned in the "Home" section, there are a few main economic concepts involved in this theory of minimum wage, including the Supply and Demand Framework (Neoclassical Model), Market Failure, as well as Price Elasticity of Supply and Demand.
What is the Minimum Wage Law? |
The minimum wage law is a law that effectively places a price floor on wages of employees in the market. It is the lowest daily or monthly renumeration that employers may legally pay to workers. Equivalently, it is the price floor below which workers may not sell their labour.
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The effects of the minimum wage policy can be expressed through the diagram on the left. Initially, market equilibrium is attained in the labour market at the free market wage. The minimum wage is set above the market equilibrium wage, such that producers are prohibited from paying workers less than the stipulated wage. At the quantity demanded, workers will now enjoy a higher wage rate. However, now there will be a surplus (quantity demanded - quantity supplied) units of labour, resulting in unemployment.
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