Question

What do you think the impact of raising minimum wage will be? Which groups of population will benefit and which groups of population will not benefit from this situation?

Answer 1

In order to be binding, minimum wage is imposed above the free market equilibrium wage. If minimum wage is increased, at the higher wage rate, quantity of labor demanded will fall but quantity of labor supplied will rise, therefore there will be a surplus of labor, causing unemployment. Therefore, the workers who retain their job at higher minimum wage will benefit from such minimum wage hike, and the workers who lose their job as a result will be harmed. Employers (firms) will lose (gain) to the extent their wage bill increases (decreases).