9/17/2023 0 Comments David production wage![]() ![]() In other words, the mandated minimum wage results in more workers seeking employment than there are jobs available-these workers are unemployed. However, the graph also shows the surplus of labor created by the higher minimum wage as the distance between Q d (employed workers) and Q s (workers seeking employment). These workers earn a higher wage than before-they are the beneficiaries of the higher minimum wage. The demand curve determines the number of workers hired by employers, and Q d notes the number of workers employed at the higher minimum wage. The quantity of labor demanded (by employers) would decrease as firms adjust to higher labor costs (indicated by the move from Q e to Q d. The increase in the wage would cause the quantity of labor supplied (by workers) to increase, as people seeking the higher wage would enter the low-skilled labor market (indicated by the move from Q e to Q s). In this case, the minimum wage acts as a price floor. If the government thinks that the equilibrium wage is too low, then it might establish a minimum wage that is higher than the equilibrium wage, such as W m. At equilibrium, the number of people wanting to work equals the number of workers employers want to employ. These curves intersect at the equilibrium wage (labeled W e on Figure 2). The demand curve tells us how many workers employers are willing to hire at any given wage (Figure 2). The supply curves tell us how many workers are willing to work at any given wage. The labor market has both a supply side (workers) and a demand side (employers seeking workers). Louis, accessed August 27, 2021.Īlthough a simple supply and demand model fails to capture the nuances of a minimum wage policy, it is a useful place to start the discussion. SOURCE: FRED ®, Federal Reserve Bank of St. the Nominal Federal Minimum Hourly Wage (green line) The Real Federal Minimum Hourly Wage (blue line) vs. For example, although the nominal minimum wage is at a historical high, the real (inflation adjusted) minimum wage is low relative to historical values and has the same purchasing value (red line, Figure 1) today as it did in 2007, 2005, 1990, 1989, and 1950 (see where the blue line crosses the red line). 3 Although the nominal minimum wage (green line, Figure 1) has been raised several times, the purchasing power of the minimum wage (blue line, Figure 1) has varied over time. 2 The current federal minimum wage is $7.25 and was last changed in 2009. The wage applied to a relatively small group of workers and was established "to end starvation wages and intolerable hours," especially for child laborers. The minimum wage was created by President Franklin Delano Roosevelt in 1938 as part of the Fair Labor Standards Act, which set the wage at 25 cents. "Hard-working Americans deserve sufficient wages to put food on the table and keep a roof over their heads, without having to keep multiple jobs." ![]()
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