Minimum Wage Is A Price Floor And It Unemployment

In modern western countries labor is the primary recipient of price floors 1 in particular the government imposes a minimum wage making it illegal for an employer to pay a worker less than a certain amount per hour.

Minimum wage is a price floor and it unemployment. An example of a price floor is minimum wage laws where the government sets out the minimum hourly rate that can be paid for labour. Conversely if a company would like to pay employees 10 this will not work because that amount is lower than the price floor in this case it is a binding price floor. In the case of minimum wage employees are the suppliers of labor the good while businesses become the consumers. This right over here is our minimum wage.

Minimum wage is an example of a government intervention in order to redistribute wealth through the use of a price floor. That was a maximum price for rent now this is a minimum price for labor. In our supply and demand analysis a minimum wage is a simple application of a binding price floor. The minimum wage is a legally mandated price floor on hourly wages below which non exempt workers may not be offered or accept a job.

In this video we take a look at the minimum wage. Our price floor is right over here 7. Unfortunately it like any price floor creates a surplus. More living wage definition.

In this case it is a surplus of workers suppliers of labor more of whom are willing to work in minimum wage jobs than there are employers demanders willing to hire at that wage. In this case the wage is the price of labour and employees are the suppliers of labor and the company is the consumer of employees labour. 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. The supply and demand model implies that by mandating a price floor above the equilibrium wage minimum wage laws will cause unemployment.

In this case the price which is typically on the y axis is the wage which gets paid to workers. Since the price floor this minimum price is higher than the actual clearing price it s going to distort the market. A price floor is the legal limit on how low a price may be set for a good. Legislating a minimum wage is commonly seen as an effective way of giving raises to low wage workers.

Price floors when prices are kept artificially high lead to several consequences that hurt the consumer. For instance if the minimum wage in a particular state is 12 and a company would like to pay their employees 14 per hour this is not an issue this is not a binding price floor.