Answer to Question #97753 in Microeconomics for val

Question

in 2002 the South African government introduced the minimum wage for domestic workers .with effect from the 1st of Jan 2019 it has been set revised on R 15 per hour with exceptions of workers working few hours in certain areas . with the aid of a diagram discus the welfare effects of such policy if the wage rate set is above market clearing wage rate (assuming this was R 12 per hour

Answer 1

If the minimum wage increases and is above the market clearing rate, a situation of excess supply would prevail in the South African economy.

However, if the Government raises the wage rate to R 15 per hour, it would distort market behaviour and disequilibrium would prevail. At this rate, the number of workers would increase. However, unemployment would increase as firms would only hire few workers due to the increased wage rate.