How the Minimum Wage Affects the Labor Market - Essay Example

Two outcomes are probable when the government entails a price floor: if the price floor is lower than the equilibrium price, it is not binding and has no effect on the price or quantity sold; and if the price floor is higher than the equilibrium price, the floor is a binding constraint and a surplus is formed (Adler, D. A. 1984). The quantity supplied surpasses the quantity demanded. For the reason of the resultant surplus, buyers’ demands for the good or service must in several ways be rationed among sellers.

A significant example of a price floor is the minimum wage. Minimum wage laws order the lowest price for labor that any employer may pay (Henderson, 2004). Keep in mind that the economy includes not a single labor market, but many labor markets for various types of workers. The impact of the minimum wage varies on the skill and experience of the worker. Workers with high skills and much experience are not affected, for the reason that the equilibrium wages are well above the minimum. For these workers, the minimum wage is not binding. Not all minimum-wage workers are heads of families trying to help their families escape poverty. Less than a third of minimum-wage earners are in families with incomes lower than the poverty line. Most are teenagers from middle-class homes working part-time jobs for extra spending money.

The minimum wage has its utmost impact on the market for teenage labor. The equilibrium wages of teenagers are low for the reason that teenagers are among the least skilled and least experienced members of the labor force. Additionally, teenagers are frequently willing to accept a low wage in exchange for on-the-job training. As a consequence, the minimum wage is more frequently binding for teenagers than for other members of the labor force. In addition to changing the quantity of labor demanded, the minimum wage also alters the quantity supplied. For the reason that the minimum wage raises the wage that teenagers can earn, and it amplifies the number of teenagers who prefer to look for jobs.

The Advocates of the minimum wage consider the procedure as one way to increase the income of the working poor. Most advocates of the minimum wage acknowledge that it has several undesirable effects, including unemployment, but they suppose that these effects are small and that, all things considered, a higher minimum wage makes the poor better off. While the Opponents of minimum wage assert that it is not the best way to fight poverty. The Opponents consider that a high minimum wage triggers unemployment encourages teenagers to drop out of school and prevents several unskilled workers from getting the on-the-job training they need. Furthermore, opponents of the minimum wage point out that the minimum wage is an inadequately targeted policy. Read More