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what is the effect on the labor market when wages are above the equilibrium wage?

what is the effect on the labor market when wages are above the equilibrium wage?

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Answer #1

Wages above the equilibrium wages are caused by the following factors:

  • Minimum wage fixed by the government which is above the equilibrium wage.
  • Efficiency wage is fixed by the employers deliberately to attract highly skilled workers and these workers tend to work hard.

Wage above the equilibrium wage tends to cause oversupply of labor and demand is not sufficient to absorb whole supply. Hence, mass unemployment is witnessed.

If not determined by the law, competition among the workers may pull down wage to equilibrium level.

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