Answer to Question #259612 in Microeconomics for Hini

Question

What are the welfare effects of a binding minimum wage? Use a graphical approach to show what happens if all workers are identical. Then describe in writing what is likely to happen to workers who differ by experience, education. age, gender, and race.

Answer 1

Binding minimum wage means setting the minimum wage above the equilibrium wage. In this case, adjustments in wage are blocked and there is prevention of the market from allocation of labor resources.

Minimum wage is something that is pro-welfare, but in other hand it will also encourage employers to cut jobs.

The labor market is regulated by the government through setting a minimum wage that firms must pay their workers. The effect of this is the same as that of a price floor.

If all the workers are identical, focus will be on:

• Productivity- each worker is different in terms of productivity, so hiring a more productive worker is always the norm.
• Education- required education relevant to the field is preferred.

Difference in workers:

• Experience- experience is considered in the relevant field and it adds to the value of the operations.
• Gender- gender neutrality should apply. But if it is hard labor work, certainly men are to be preferred.
• Age- young people are preferred to old people when it comes to hard labor. This is because old people may certainly have health problems that may not allow them to do tedious tasks.
• Race- neutrality in race should apply. All races have great culture in them that add considerable value to the work environment. This greatly increases diversity and stability.