Ch 6 Labor of love As a result of the Great Depression the U

Ch. 6 Labor of love As a result of the Great Depression, the U.S. government established many new regulations targeted at helping workers and consumers. One new piece of legislation was the minimum wage law, which sets a foor on the price of labor. Today, we frequently debate what impacts an increase in minimum wage would have What impacts might a rise in the minimum wage have (f phased in over the next 3-4 years)? Reply

Solution

This concept is closely related to the substitution and income effects. The total income of labor and employment opportunities both are hampered when there is an increase in the minimum wages especially when the nature of the labour demand is more elastic. This can be seen with the help of income effect which indicates the effect of improved income levels on the consumption of different types of services and goods. This is also reflected by the substitution effect of changing prices to consumption of goods and services. When the wages of the labors are increased or decreased, it has its impact on the demand of the labors depending upon the elasticity of labor demand.

These types of situations are not better as the advantages of having an increased total income resulting from the increased wage rates will be advantageous to only a handful labors only when the demand of labor is inelastic in nature. If the demand of the labour is inelastic in nature, then the effect of increasing the wage rates will be greater as it will improve the total income of greater number of people than the negative impact of this practice on the number of labors. Thus these benefits will be enjoyed by those workers who are able to retain their jobs but the negative impact will be experienced by those who lose their jobs and thus the advantage for them will be zero.

The above stated opinion depends on the assumption that the nature of the labor demand is inelastic and the percentage if increase in total income is more than the percentage of loss of jobs.