Question

True or False: In the absence of government regulation on employment conditions and wage rates, employers would reduce pay to negligible levels. Provide an explanation for your answer.

Answer 1

"False"

In the absence of wage law or government, intervention wages will settle by the demand and supply of labor in the market. If the demand for the labor is more for example at the time of economic boom the wages will increase too. Similarly in sectors which doesn't have a large supply of labor for example profession which needs high qualification the wages will be very high because the supply is less.

In unskilled sectors, the wages will be low because the supply of labor is more in those sectors. but, people will soon start picking up skills which pay them more and this will increase the wages at a similar level for both skilled and unskilled level.

The second thing which will affect the wages will be choosing between leisure and work. If wages are very low the supply of labor will fall and wages will increase.