Answer to Question #330980 in Macroeconomics for Tiwaah

Question

One way of aiding low-income families is to increase the minimum wage. An alternative is to provide a direct grant of non-labor income. Compare the impact of these two options on work incentives.

Answer 1

Minimum wage refers to the least amount of wages to be paid to the workers with which the livelihood of their families can be sustained. It is the wage paid for the welfare of the workers. If the minimum wage is increased for low-income families, then leisure for the workers will become expensive as due to an increase in the wage rate, the opportunity cost of work rises. Opportunity cost is the value of an alternative not selected. Hence the workers will not take hours of leisure at high opportunity cost, and so they will work for more hours.