Answer to Question #111164 in Microeconomics for Buhle

Question

According to the Department of Labours new rates , domestic workers working in Area A (bigger than metropolitan areas) who work more than 27 ordinary hours per week must be paid a minimum of R13,59 per hour. Workers who work fewer than 27 hours per week must be paid a minimum of R16,03 per hour. This means that a domestic worker who works 45 hours per week will now earn a minimum of R2669,24 . With the aid of a diagram, discuss the welfare effect of this new legislation if the new minimum wage is (1) below the equilibrium wage and (2) above the equilibrium wage rate with labour hours as your quantity variable

Answer 1

The walfare effect of this new legislation is to bring the minimum wage to the equilibrium labor and to maintain the equilibrium. If the new minimum wage is below the equilibrium wage the economy is in recession and when the new minimum wage is above the equilibrium the economy is in a progresion mode.