Answer to Question #104145 in Macroeconomics for Abdul

Question

"A number of politicians, policy advocates and employees demanded that minimum wage rates should increase in Fiji." Use PICs as an example to discuss the nominal and real effect of an increase in minimum wage rates.

Answer 1

Increase in the minimum wage rates has the following effects;

The amount of labour hired in the market decreases due to the minimum wage rate

Increase in minimum wage rate create unemployment since there are many people willing to work but not able to find jobs

The minimum wage creates dead weight loss because some trades of labour services do not take place

When the government imposes a minimum wage,firms are not permitted to pay less than the amount of government mandates