1 The state of NJ recently passed an increase in the minimum

1. The state of NJ recently passed an increase in the minimum wage, how will this impact wages and the quantity of labor? Make sure to include the appropriate graph (starting with the initial equilibrium price and quantity) as well as who the potential winners and losers are (on the graph and an intuitive explanation), as well as provide alternative solutions.

Solution

Soln:

Imposition of a minimum wage above the equilibrium wage, minimum wage laws should cause unemployment. This is because a greater number of people are willing to work at the higher wage while a smaller number of jobs will be available at the higher wage. Companies can be more selective in those whom they employ thus the least skilled and least experienced will typically be excluded. An imposition or increase of a minimum wage will generally only affect employment in the low-skill labor market, as the equilibrium wage is already at or below the minimum wage, whereas in higher skill labor markets the equilibrium wage is too high for a change in minimum wage to affect employment.

If a higher minimum wage increases the wage rates of unskilled workers above the level that would be established by market forces, the quantity of unskilled workers employed will fall. The minimum wage will price the services of the least productive (and therefore lowest-wage) workers out of the market.

If a higher minimum wage increases , the wage rates of unskilled workers above the level that would be established by market forces, the quantity of unskilled workers employed will fall. The minimum wage will price the services of the least productive (and therefore lowest-wage) workers out of the market.