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Economics Assignment

Wages play a huge part to play in the productivity of the labourers and workers. It acts as a medium of incentive for the workers to increase their productivity level which in turn helps in increase in the level of output and production (Gerhart, 2017). Minimum wages also acts as a shield for the workers in an industry as below the minimum wage rate the employers can reduce their wages. It is that minimum level which the employers have to pay to the laborers and staff irrespective of any market conditions. Thus, minimum amount of wage rate plays a huge impact on the market scenario of an industry. It acts a major force in the employment of workers in an industry. It acts as an effective wage floor (International Labour organisation, 2020).

Taking into consideration the minimum wage, it will make the producers to shift the increase in the wage rise onto the consumers in the form of an increase in the prices of goods and services. This on a macroeconomic level will lead to a rise in the prices of overall goods and commodities in the economy consequently increasing the level of inflation (Jhinghan, 2016). This can be depicted by a diagram:

As shown in the diagram price and GDP are taken on the y and x axis respectively. The demand and initial supply curve are at equilibrium at point E with Q1 output and real GDP in the country with equilibrium price P. When the minimum wage level is implemented the producer shifts the overhead extra cost in the production of increased wage onto the consumers the prices rise from P to P1 level. It leads to a shift in the supply curve from right to left thereby decreasing the total supply and shifting the equilibrium level from E to E1.

In addition to this, if the minimum wage rate is higher than the equilibrium wage rate then since the employers cannot afford higher wages and salaries of its employees and workers so they tend to decrease the level of employment (Ruesga-Benito et al., 2017). This can also be depicted by a graph:

With the diagram above it is clear that wages and employment of labor both have been taken on the y-axis and x-axis respectively. The equilibrium level of wages is at EL* and employment level of labor is at WE with E as the equilibrium point. Now, since the minimum wage rate is higher than the equilibrium wage rate so the equilibrium has been shifted from E to E1. This has taken the wage level to increase and shift from W to W*. Thereby decreasing the level of employment from L* to L.

Taking into due consideration the advantages and disadvantages of the minimum wage on the firms, consumers and employees. Firstly taking into regard the advantages:

  • If the minimum wages are effective then it helps in safeguarding the interests of the employees and workers as below that level the employers cannot take the wage level (MaCurdy, 2015). This acts as a boon to those workers against whom the employers are biased in any kind of manner. This mostly helps in case of working women, minor labor class people, and people of low caste backgrounds etc (Mumford and Lopresti, 2016).
  • Another advantage of the minimum wage is that it helps and enables the makers of various policies and strategies to address and take into due consideration the demands of the public to fight against the increasing levels of inequality (IZA World of labor, 2018).
  • It acts as an incentive to some workers as there is increase in the wages which leads to increase in their respective productivity. Considering the same thought with respect to that of the producers and manufacturers with the increase in the productivity of the workers it leads to an increase in the supply of goods and services. Thereby creating normal profits for the producers with high amount of gains (Sexton, 2018).
  • As when the workers are gaining from their increased wages and salaries it is leading to increase in their purchasing power and thereby increasing their standards of living and quality of life.
  • Another good impact which it creates on the economy is that due to limited jobs there is increase in the level of competition among the labor to get the job. So people who are well qualified and skilled are able to get the jobs which have minimum wage requirements as a parameter (Collins, 2017). Thus the firm get skilled labor which is high in human capital than illiterate ones. This will have a great impact on the level of production and in the management of the company as well.

Now taking into regard the disadvantages of the minimum wage on the companies, consumers and lastly on the employees and workers working in the organisations. The limitations can be listed as:

References for Impact of The Existing Minimum Wage

Collins, C. 2017. Raising the minimum wage: An economic gain. The Park Place Economist. 25(1), 130-132.

Gerhart, B. 2017. Incentives and pay for performance in workplace. Advances in Motivation Sciences, 4, 91-140, https://doi.org/10.1016/bs.adms.2017.02.001

International Labour Organisation. 2020. Effects on Wages. [Online]. Available at: https://www.ilo.org/global/topics/wages/minimum-wages/monitoring/WCMS_438873/lang--en/index.htm [Accessed on: July 10th, 2020].

IZA World of Labor. 2018. Employment effects of minimum wages. [Online]. Available at: https://wol.iza.org/articles/employment-effects-of-minimum-wages/long [Accessed on: July 10th, 2020].

Jhighan, M.L. 2016. Micro economics theory. Vrinda Publications.

MaCurdy, T. 2015. How effective is the minimum wage at supporting the poor? The University of Chicago Press, 123(2), 497-455, DOI: 10.1086/679626

Mumford, K.J. and Lopresti, J.W. 2016. Who benefits from a minimum wage increase? Sage Journals, 69(5), 1171-1190, https://doi.org/10.1177%2F0019793916653595

Ruesga-Benito, S.M., Gonzalez-Laxe, F. and Picatoste, J. 2017. The debate on the economic effects of minimum wage legislation. European Journal of Government and Economics, 6, 171-190, DOI: 10.17979/ejge.2017.6.2.4328

Sexton, R. 2018. Exploring microeconomics. Sage Publications.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Economics Assignment Help

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