Answer to Question #192162 in Macroeconomics for Sinentlahla

Question

On January 1st 2019, South Africans first-ever national minimum wage came into effect.the legislation stipulated a minimum wage rate of R20 per hour or R3500 per month depending on the number of hours worked. However some economists warned that it may depress S. A's already high unemployment rate further by making it more expensive to hire workers. 1.Using your knowledge of basic economic theory, illustrate and explain with the aid of a graph, why some economists might have given such a warning?

2.what are common arguments offered for and against the minimum wages?

3. Have they been correct so far in the prediction that a national wage will depress S. A's already high unemployment rate? Explain

Answer 1

1.

Considering S to be Supply here in the question With the introduction of first-ever national minimum wage in the legislation, the Supply of labor is not going to depress rather there's going to be a surplus in the labor supply. This is because as there's a minimum wage being set up by the government, the firm even during the economic recession cannot make changes in the wages of labors thus forcing them to decrease their demand for labor. Also with the introduction of national minimum wage the supply of the labors would increase.

The graph below depicts the same:-

2.

Arguments in favor of Minimum wages law:

• It raises the standard of living because it guarantees a minimum wage to every working individual.
• Labors exploitations can be minimized.
• The efficiency and productivity will rise as now the labor would be focused more towards their work

Arguments against Minimum wage law:

• Raises the overall cost that is incurred on a firm.
• Provides benefits to even those unskilled labor who don't deserve even the minimum wage.
• Reduce the profit margin of a firm thus leading to a fall the business growth.

3.

No the economists are wrong predicting that a national wage will depress supply. As explained in the first part it will further raise the labor supply

Since the minimum wage will force the firms to layoff some labors in order to maintain the equilibrium cost the demand for the labors will fall thus leading to a rise in the high unemployment rate in the economy.