Minimum wage is the minimum price that can be offered in exchange for labour in the unskilled labour market. Minimum wage is an example of a binding price floor, where the government sets a legal mandated price above the equilibrium price for that particular market or product. A binding floor price leads towards a surplus of supply. In minimum wages, the surplus is unemployment. This essay will address the concept of binding minimum wages and the affect of the minimum wage on unemployment and groups within the workforce.
A binding floor price imposed on a market for a particular good or service can lead the market towards a surplus due to excess quantity supplied and a decrease in quantity demanded for that particular good or service. Similarly, …show more content…
Clemens and Withers (2014) state that the estimates associated with teenagers and young adults demonstrate that an increase in the minimum wage reduced the employment of low-skilled workers by 3%. The binding minimum wage would encourage employers to lay off employees whose productivity levels was less than the minimum wage and all of the labour force bound by the new minimum wage (Belman & Wolfson, 2015). This would also lead to an increase in unemployment for the unskilled workers. Workers with a lower level of education is also affected by an increase in the minimum wage through unemployment as employers would prefer higher-skilled with a college education than lower-skilled workers without adequate levels of education. The increased minimum wage could also negatively impact smaller firms and businesses as they have to pay the increase in wages for their employees (Clemens & Withers, 2014). The cost of the increased minimum wage could further be passed on to consumers as employers and businesses increase the price of a product or service in order to reduce unemployment (Card & Kruger, 1994). Thus an increase in the minimum wage hurts teens and young adults, unskilled workers, workers with a lower level of education and
A binding floor price imposed on a market for a particular good or service can lead the market towards a surplus due to excess quantity supplied and a decrease in quantity demanded for that particular good or service. Similarly, …show more content…
Clemens and Withers (2014) state that the estimates associated with teenagers and young adults demonstrate that an increase in the minimum wage reduced the employment of low-skilled workers by 3%. The binding minimum wage would encourage employers to lay off employees whose productivity levels was less than the minimum wage and all of the labour force bound by the new minimum wage (Belman & Wolfson, 2015). This would also lead to an increase in unemployment for the unskilled workers. Workers with a lower level of education is also affected by an increase in the minimum wage through unemployment as employers would prefer higher-skilled with a college education than lower-skilled workers without adequate levels of education. The increased minimum wage could also negatively impact smaller firms and businesses as they have to pay the increase in wages for their employees (Clemens & Withers, 2014). The cost of the increased minimum wage could further be passed on to consumers as employers and businesses increase the price of a product or service in order to reduce unemployment (Card & Kruger, 1994). Thus an increase in the minimum wage hurts teens and young adults, unskilled workers, workers with a lower level of education and