question archive What situation would be expected in a labour market in which the government imposes a binding minimum-wage law?
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What situation would be expected in a labour market in which the government imposes a binding minimum-wage law?
Imposing binding minimum-wage law by the government may have different impacts and create different situations according to the current condition of the labor market. If the wages already offered in the market are low then the minimum-wage provision will create a situation of surplus labor; that is, with this provision, an increase in the supply of labor will be seen as more people will look for work. As people can start working at minimum wages, therefore, this can also (given the right circumstances) reduce unemployment. In the case in which the wages offered in the market are high, then minimum wages will not act as an encouragement or incentive for laborers, instead, a situation of decreased (or no change in) supply of labor will be experienced assuming demand to remain the same, given that laborers will see their value decrease (if the market wage falls with the minimum wage) or see no change in their value because the market wage is higher than the minimum wage.