Question

In the labour market for carpenters, the current market clearing wage rate is R800 per day. With the aid of a diagram, discuss the welfare effects of government intervention in the form of legislation that sets the minimum wage rate for a carpenter at R1000 per day

Answer 1

If the minimum wage rate for a carpenter at R1000 per day is set, then there will be a surplus of labor, so the market will become inefficient and the deadweight loss will be created.