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21 December, 22:47

With a minimum wage in place, is the number of workers actually being hired higher or lower than it would have been at equilibrium?

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  1. 21 December, 22:51
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    The number of employees hired with a minimum wage is lower than it would have been at equilibrium.

    A minimum wage operates as a price floor which is established above the equilibrium in the labor market to ensure that salaries do not fall below a certain level. If the minimum wage was not fixed, market forces would tend towards the equilibrum.

    As the graph shows, when a minimum price is set above the equilibrium this generates an excess supply situation. The supply of labor is constituted by people who are willing to sell their work abilities in exchange for different wage levels. Therefore, if there is an excess supply situation, there will be workers who would be willing to work for the minimum wage but labor demand is not large enough at that same level. Therefore, a minimum wage brings unemployment.
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