The Impact Of Minimum Wage

Minimum Wage Minimum wage is an economic principle that ensures individuals can maintain a minimum quality of life. Minimum wage is a basic government-imposed price control. Workers’ concept of low-wage work is shaped by a number of sociopolitical factors—documentation status, race, gender, geographic location, education level, and previous employment (Kahle 2013). Price controls set a floor indicating what minimum price must be paid for certain goods or services. Governments set price controls to ensure individuals receive a fair wage at various jobs (Vitez 2012.). Neoclassical economic theory predicts what will happen to minimum wages in an economy on an employee and employer level. The market of labor is subject to supply and demand just

Minimum wage is grounded in the view that if a worker and employee agree on a wage then this wage level must be welfare maximizing for both them and by definition for society. The only thing a government regulated price for labor can do is distort labor markets and lead to less, not more economic welfare (Atkinson 2013). The impact of minimum wage depends on the employees’ skills and experience. Highly skilled workers are not affected because their wages are above equilibrium minimum which makes these workers minimum wage not binding. Minimum wages result in unemployment because the number of employees seeking employment is exceeding the number of employees organizations are wanting to hire. For example, teenage workers with increased minimum wages results in less job opportunities for other teenagers who drop out and decided to join the workforce ;minimum wage alters the minimum demanded and minimum supplied. Increasing the minimum wage will decrease the need of workers in the market because employers will have to cut costs to pay the new minimum

The neoclassical theory suggests that an increase in minimum wage would decrease welfare not maximizing the issue. But through the supply and demand graph it shows the exact opposite. If the minimum wage were to increase for low-wage workers then the number of positions available causing unemployment. Employers would have to alter their demand to what they can afford because now they have to adhere to the demands of the government’s regulation on increasing the minimum wage. Highly skilled workers would not be affected in this scenario because they are paid above the minimum wage. The market is largely affected by minimum wage requirements for low-wage workers and there needs to be a balance of what is supplied and demanded in order to maintain the same level of functionality in the