Suppose the minimum wage is above the equilibrium wage in the market for unskilled labour. Using a demand and supply diagram of the market for unskilled labour, show the market wage, the number of workers who are employed, and the number of workers who are unemployed. Also show the total wage to unskilled workers.
To illustrate the effects of a minimum wage above the equilibrium wage in the market for unskilled labor, we can use a demand and supply diagram. Here's how you can proceed:
Step 1: Draw the axes: On the horizontal axis, label it as "Quantity of Unskilled Labor" and on the vertical axis, label it as "Wage."
Step 2: Draw the supply curve: The supply curve represents the quantity of unskilled labor that workers are willing and able to offer at different wage levels. Typically, the supply curve slopes upward from left to right to represent the positive relationship between wage and the quantity supplied.
Step 3: Draw the demand curve: The demand curve represents the quantity of unskilled labor that employers are willing and able to hire at different wage levels. Typically, the demand curve slopes downward from left to right to represent the negative relationship between wage and the quantity demanded.
Step 4: Identify the equilibrium: The equilibrium is the point where the demand and supply curves intersect. It represents the market wage and the quantity of unskilled labor that is both demanded and supplied without any intervention.
Step 5: Draw the minimum wage line: Draw a horizontal line above the equilibrium wage, representing the minimum wage policy in the market.
Step 6: Determine the market wage: The market wage will be set at the intersection between the minimum wage line and the supply curve, as this is the wage level dictated by the minimum wage policy.
Step 7: Calculate the number of workers employed and unemployed: The number of workers employed can be determined by the quantity demanded at the market wage. The number of workers unemployed can be determined by the difference between the quantity supplied and the quantity demanded at the market wage.
Step 8: Calculate the total wage to unskilled workers: Multiply the market wage by the number of workers employed to obtain the total wage paid to unskilled workers.
By following these steps, you can create a diagram that shows the market wage, the number of workers employed and unemployed, and the total wage to unskilled workers under a minimum wage policy above the equilibrium wage in the market for unskilled labor.