Minimum Wage Is A Price Floor And It

Over pros and cons of raising minimum wage 2006.

Minimum wage is a price floor and it. The minimum wage is a legally mandated price floor on hourly wages below which non. Minimum wage is an example of a government intervention in order to redistribute wealth through the use of a price floor. The price floors are established through minimum wage laws which set a lower limit for wages. The market equilibrium price is where the supply of a good or service meets the demand for it in the marketplace.

Because this is the most popular and recognizable example of a price floor we will concentrate on it for the rest of this. Unfortunately it like any price floor creates a surplus. The most common example of a price floor is the minimum wage. A price floor is the legal limit on how low a price may be set for a good.

Minimum wage is a price floor so discuss an increase in the minimum wage from a supply and demand standpoint making sure to address the concept of surplus with respect to the quantity of labor supplied and the quantity of labor demanded that is generated by this price floor. For example many governments intervene by establishing price floors to ensure that farmers make enough money by guaranteeing a minimum price that their goods can be sold for. Without a minimum wage and other labor laws as is seen in countries that allow sweat shops globalized labor markets can be extremely inhumane offer. A minimum wage is a type of price floor.

There have been varied debates on the justification of price floors and most importantly the minimum wage debate rages in u s. 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. For example the uk government set the price floor in the labor market for workers above the age of 25 at 7 83 per hour and for workers between the ages of 21 and 24 at 7 38 per hour. Legislating a minimum wage is commonly seen as an effective way of giving raises to low wage workers.

For a price floor to be effective the minimum price has to be higher than the equilibrium price. A minimum wage is the lowest wage per hour that a worker may be paid as mandated by federal law. In the case of minimum wage employees are the suppliers of labor the good while businesses become the consumers.