Minimum Wages in Labor Market - Essay Example

? Minimum Wages Contents Introduction 3 (A) With the use of diagrams illustrate and explain the likely effect of the introduction of minimum wage legislation on labor markets over time. 3 (B) Discuss the extent to minimum wage legislation has a positive or negative impact on the well-being of people living in poverty. 6 Conclusion 8 Reference 9 Introduction The different types of labor markets are skilled, semi skilled and unskilled markets. The workers skilled in a certain job are categorized in the skilled market while the unskilled workers fall under unskilled market. The workers who are having relatively more expertise in a certain job than the unskilled ones are categorized in semi skilled market. (A) With the use of diagrams illustrate and explain the likely effect of the introduction of minimum wage legislation on labor markets over time. Answer: The rates of minimum wage can vary across jurisdictions. The concerned authorities are entitled to set the minimum amount of wage for the workers. The indicators that minimizes the loss of jobs as well as maintains international competitiveness is used to set the initial minimum wage. The general economic conditions like real and nominal rates of gross domestic product, the supply and demand of labor force, and the level of inflation existing within the economy, the different terms of employment and costs of labor and business operation, the standard of living are taken into consideration as well. In a perfectly competitive labor market many firms are in competition in hiring workers. The firms lack the power to set wages and the wage rate is determined by the market. If a firm deviated from that wage it losses by paying higher and gains if it pays lesser. In employer dominated labor markets there is a collection of some small local markets. Some firms enjoy the dominant position and a major employer has the capability to set the wage rate for the workers without the fear of competition from other firms (Flinn, 2010, p. 3).. In both the cases there are large numbers of workers and each of them has a reservation wage. The worker may not work if the wage rate is below his reservation wage. The relationship between the participants in the labor market and the market wage is regarded as labor supply and denoted by the upward sloping curve. The effect of the introduction of minimum wage legislation depends on the type of labor market. The employers’ power on wage decisions is dependent on whether the market is competitive or not. Two scenarios can be taken under consideration. The diagram below shows two market structures. Bothe panels have the supply and the demand curve for labor. The wage rate is depicted on the X-axis while total labor force N is depicted on the Y-axis. The minimum wage is denoted by Read More