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Using market supply and demand analysis, explain why labor union leaders are strong advocates of raising...

Using market supply and demand analysis, explain why labor union leaders are strong advocates of raising the minimum wage above the equilibrium wage.

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Answer #1

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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