Using market supply and demand analysis, explain why labor union leaders are strong advocates of raising the minimum wage above the equilibrium wage.
The minimum wage is like a price floor for the workers. The minimum wage is effective and binding only if it is higher than the equilibrium wage (w). E is the point of equilibrium where labour demand equals labour supply. Setting w1as the minimum wage will create a surplus of labour in the market as people will be willing to work at this higher wage. Thus the surplus is L2-L1 . However if minimum wage is set below the equilibrium wage it will not be binding as the workers will be better off with the equilibrium wage.
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