Minimum Wage Essay

Minimum wage has gained an important place in the brain of politicians to reduce social gaps and inequality. Governments intervene on the market to allocate a better wage towards workers than the one offer by the market equilibrium. This controversial measure raises lots of debate on whether raising the minimum wage results in workers becoming jobless. Government intervention on minimum wage has one main goals: increase the demand by an increasing of wage. The main reason against minimum wage is that it creates unemployment among low skilled workers; on top of that it can be argued that the redistribution effect is not going to the target people of the measure. On the other hand, we will see that increasing wage of workers may increase also

In this case, workers and jobs that have a value inferior to the minimum wages are unhallowed to enter in the market legally.

This graph displays the labor market with a minimum wage. The market with a price floor has shown an increase in the quantity traded from Qd to Qs . The effect of minimum wage is represented by the black area: Qd,Qs,Pe. The black area is what we can call a surplus, on the labor market, it is Unemployment. This area of surplus is an area of welfare loss where the market is inefficient. We can translate that mathematically and state that Z=qd-qs <O. Minimum wage is a brake on the way back to

The effect of increasing the wage of workers who are at the minimum wage can encourage them. The marginal cost of wage is recovered by less absenteeism, turnover, and more productivity. The labor factor has not a constant return to scale as the contrary of capital, it has to be skilled and there are some variations in its production. We have for example to take in consideration the cost training cost (a fixed cost) before making an output. Workers during this period of formation are a sunk cost because they produce no output or a low output. Study did in the Barclays bank, which has decided to increase wage until the living wage, has shown that an increase of wage reduce the turnover rate. The catering staff retention in the Barclays case, has moved from 54% to 77%, and the retention from cleaning staff from 35% to 92 % (The Economist, 2017). In this case of low turnover, the investment in training to gain in productivity and skills becomes profitable because the labor force remains the same thorough the time. In the same time there is also reduction of cost of recruitment. However, we may considered that in the case of Barclays, the retention cost represents a little part of all the cost of the company. One other important question is, what may motivate workers to be more productive? The motivation offers by a higher wage, or pressure induce to recover this additional cost for the