Recently President Obama has advocated for an increase in the minimum wage. At t
ID: 1120561 • Letter: R
Question
Recently President Obama has advocated for an increase in the minimum wage. At the same time there have been organized labor movements arguing that the wage paid to fast food workers be raised to $15 per hour. What are the standard economic arguments against raising the minimum wage? Would these arguments still go through if we believed that a worker's marginal product was affected by his or her wage level? Finally, use some economic analysis to provide some reasoning as to what might happen was the wage for fast food workers indeed raised to $15 per hour. Please answer every question and explain in detail. I am submitting in paragraph form. Thank you so much!
Explanation / Answer
Minimum wage acts like a price floor in labour market . In the labour market equilibrium wage rate is the price of labour at which supply meets demand . So if minimum wage is set , it will be above the equilibrium wage at which labour demand will be lesser than labour supply . So minimum wage laws generate unemployment in the economy .
If marginal product of workers is affected by wage level then raising wage level would induce workers to work more or provide incentive to work . Then the total product generated would remain same or rise in the economy even will the lesser labour demanded or hired but still there will be unemployment in the economy .
If wage of fast food workers rise then they will be hired lesser by firms producing fast food , so there will be unemployment in that sector .
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