On April 1, 2009, in the middle of a recession, the government of the province o

Question

On April 1, 2009, in the middle of a recession, the government of the province of Ontario, Canada increased the provincial minimum wage from $8.75 to $9.50. What will the likely effect of this policy be? Both the leftward shift in the labor demand curve and the higher minimum wage will lead to an increase in the unemployment rate. Low income workers will be better able to survive the recession at the new, higher wage rate. More people will be hired at the higher wage rate offsetting the effects of the recession. The higher wage will increase the supply of labor offsetting the effects of the recession.

Explanation / Answer

During recession the wage rate decreases, as firms start layoffs on low paying workers and moving the higher paying workers to lower pay. During recession, the Aggregate demand will reduce, so to cope up with aggregate demand, the supply will reduce leading to reduction in labor demand. Now if the government increased the wage rate during recession, then with low demand of labor and higher minimum wage rate the firms will not employee new workers leading to higher unemployment rate.

So the answer will be option A, “Both the leftward shift in the labor demand curve and the higher minimum wage will lead to an increase in the unemployment rate. “

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.