Answer to Question #99493 in Microeconomics for April joy alvarez

Question

Using market supply and demand analysis why labor union leaders are strong advocates of raising the minimum wage above the equilibrium wage

Answer 1

The minimum wage is like a price floor for the workers. Efficiency wage theory suggests that: 1. workers will be paid less than their reservation wage. 2. productivity might drop if the wage rate is too low. 3. the government can only set tax rates so high before people will prefer not to work. 4. unskilled workers will have a lower turnover rate than skilled workers. 5. firms will be more resistant to wage increases as the labor market tightens.