The minimum wage has not kept pace with inflation since 1968 and many people believe the government should more than double the federal minimum wage from $7.25 to over $15. The minimum wage is a government imposed floor price for unskilled labour.
According to the law of supply and demand in economics, setting a floor price for labour above the equilibrium price for labour would decrease the demand for labour and causing a surplus of labour which increases unemployment. So the good intention to intervene and help to raise income for workers will likely produce an undesirable outcome of higher unemployment rate.
It would be better if the economic growth is able to increase the equilibrium labour price by increasing demand. If the economic growth is not able to produce an increased demand for labour, then the only other way to increase the equilibrium price for unskilled labour is to reduce supply.
One way to reduce the supply of unskilled labour is through education and training. Some argue another way to reduce unskilled labour is to contain illegal immigration of migrant workers.
Very interesting post Kaylyn! Unskilled labor is a part of the workforce which only has a set of of limited skills and have little to no economic value for their work. Their work has very little economic value because it does not require a special education level or skills. So, if there were fewer people in this sector of the workforce, the labor market would be full of people more skilled and wages would generally increase.
ReplyDeleteNice post! Another effect of increasing the minimum wage would be increasing the prices of goods. If companies have to pay the workers that make goods more, then the average total cost increases, which means that price will go up for the good depending on market structure. It may also decrease production of the good, which will make it increasingly difficult to find and purchase for consumers. While the increase of minimum wage is well-intentioned, it is important to consider the side effects as well.
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