Answer to Question #275531 in Management for mhmdbo

Question

in some countries a national minimum wage or a "living wage" has been set by the government. What are the drawbacks of such an approach to dealing with low pay?

Answer 1

when minimum wage has been set by the government, the drawbacks of such an approach to dealing with low pay sets a price floor in the labor market, thus as a result supply of labor exceeds demand, leading to a large surplus of labor that can barely be handled by the governments wages.