Question

Consider a low-wage labour market. Workers in this market are not presently covered by the minimum...

  1. Consider a low-wage labour market. Workers in this market are not presently covered by the minimum wage, but the government is considering implementing such legislation. If implemented, this law would require employers in the market to pay workers a $5 hourly wage. Suppose all workers in the market are equally productive, the current market clearing wage rate is $4 per hour, and that at this market clearing wage there are 600 employed workers. Further suppose that under the minimum wage legislation, only 500 workers would be employed and 300 workers would be unemployed. Finally, assume that the market demand and supply curves are linear and that the market reservation wage, the lowest wage at which any worker in the market would be willing to work, is $2.

Assume 500 workers who are employed after minimum wage were all employed before.

    1. (1.5 points) Compute the dollar value of the impact of the policy on employers.
    1. (1.5 points) Compute the dollar value of the impact of the policy on workers who remain employed.
    1. (2.5 points) Compute the dollar value of the impact of the policy on workers who workers who lose their jobs as a result of the minimum wage.
    1. (2.5 points) Compute the dollar value of the impact of the policy on workers who are induced by the higher wage to enter the market but don’t get jobs.
    1. (2 points) Compute the dollar value of the impact of the policy on society as a whole.
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