Answer to Question #98570 in Macroeconomics for annie

Question

What are the positive and negative effects of the minimum wage?

Answer 1

The positive effects of minimum wage include;

(a)  Reduced poverty because the low paid will gain more income and the unemployed may be encouraged to join the labor market.

(b)  Greater equity will be achieved and the distribution of income between the high paid and the low paid will be narrowed.

(c)  Less workers exploitation by labor market monopolist since the single employers will be able to pay below the market equilibrium.

The negative effects of minimum wages include;

(a)  A high minimum wage can cause price inflation.

(b)  Falling employment as demand decreases and rising unemployment as supply increases.

(c)  Inward investment might be deterred as foreign investors will look to avoid high wage economies.

(d)  The labor market may become inflexible in response to changes in the rest of the economy.