Question

How does the law of supply and demand set the equilibrium for wages? (Think how price is a positive and negative incentive from an employee and employer perspective)

Answer 1

When the supply of labor is equal to the demand for labor, the market is in equilibrium, at the intersection between the supply and demand curves. A minimum wage is very similar to a price floor, because it is set above the market wage. When minimum wages are imposed, unemployment increases. The intersection of the supply and demand curves for labor indicates the equilibrium, or market clearing, wage rate for certain types of labor. In a free economy, unhampered by government regulation, wage rates for the same type of labor tend to equalize across markets.

answered by: anonymous