Question

Use the following information $26 boost to minimum wage The government has increased the minimum wage by $26 a week to $569.90 a week. Unions wanted a $27 a week increase, but employees argued that that level of increase was inaffordable and would send smaller firms to the wall.

Explain the effects of the higher minimum wage on the worker's surplus and the firm's surplus. Has the labor market become more efficient or less efficient? Explain

Answer 1

From the following information $26 boost to minimum wage The government has increasedthe minimum wage by $26 a week to $569.90 a week. Unions wanted a $27 a week increase, but employees argued that that level of increase was inaffordable and would send smaller firms to the wall.

Taking account of the cost of job search, workers’ surplus decreases.

Firms’ surplus also decreases because they must pay a higherwage rate.

The labor market becomes less efficient and a deadweight loss iscreated.