In a supply and demand graph for minimum wage, wage0 is the equilibrium wage, below the wage0 is wage2 (minimum wage set) and above wage0 is wage1 (minimum wage set). From the graph, which wage level ( minimum wage set) is preferred more by employees?
Employees would likely prefer wage1 (minimum wage set above wage0) as it would result in higher wages for them. This is because wage1 is higher than the equilibrium wage (wage0), indicating that employees would be earning more money per hour.
The minimum wage is set for employers like the supply and demand for labour
In that case, employers would likely prefer wage2 (minimum wage set below wage0) as it would result in lower wage costs for them. This is because wage2 is lower than the equilibrium wage (wage0), indicating that employers would be paying less money per hour for labor.
If the wage level is set at wage1, what is the likely effect on the labour market.?
Setting the minimum wage at wage1, which is above the equilibrium wage (wage0), is likely to have several effects on the labor market:
1. Increase in wages: Setting the minimum wage above the equilibrium wage will lead to an increase in wages for workers in low-wage jobs.
2. Potential job loss: Employers may respond to the higher minimum wage by reducing their workforce or cutting back on hiring new employees. This could result in potential job losses, particularly for low-skilled workers who may find it harder to secure employment at the higher wage level.
3. Increased production costs: Employers who rely on low-wage labor may experience an increase in production costs due to the higher minimum wage. This could lead to higher prices for consumers, reduced profits for businesses, or potential relocation of operations to lower-wage regions.
4. Inflation: An increase in the minimum wage could lead to higher overall price levels in the economy, as businesses pass on the higher labor costs to consumers. This could contribute to inflationary pressures in the economy.
Overall, setting the minimum wage above the equilibrium wage can have both positive and negative effects on the labor market, and the specific outcomes will depend on various factors such as the elasticity of demand for labor and the overall state of the economy.