Question:

Economic effects of this decision? help?

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The federal government decides to increase the minimum wage by $1.12 an hour. What are the potential economic effects of this decision?

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  1. Minimum wage would cause an increase in supply of labor and decrease in demand for them.  Because wages are raised, more people want to work.  However, because costs are higher (min wage increased), businesses will demand less workers.  It is possible they may even fire some workers due to higher costs.  Whether a minimum wage should be done or if it should be raised, I won't say because that is a complex debate.  I agree with everyone else, the wikipedia article should :) do a nice job explaining that.


  2. Minimum wage is a price FLOOR.  It is set above the equilibrium price because the value of these services has been determined to be too low.

    Increasing the minimum wage will cause a decrease in the amount of labour demanded (at the new higher price) and an increase in the supply of labour.  As mentioned before, Wikipedia does an adequate job of explaining these principles.

  3. Minimum wage is a price floor.  Wikipedia does a good job explaining the effects of a price floor and minimum wage.  See this website for more information.  

    http://en.wikipedia.org/wiki/Minimum_wag...

    See the economics of the minimum wage for a ton of good information.

    But basically, if the government imposes a minimum wage, and increases this minimum wage, it will actually increase unemployment.  A surplus of labor occurs.  This occurs because some businesses do not feel as if they work that they want to hire people for is worth the minimum wage that the government sets.  It would not be economically sound for them to hire some jobs at a price floor created by minimum wage.  It's all supply and demand.  Look at wikipedia for charts, explanations, etc. on this topic.  Hope this helps!

  4. company will slash jobs and replace it with more overtimes.

    more taxes will paid.

    no dramatic effects will occur because most of people earn more than minimum wage

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