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What do you think is the effect an increase in the legal minimum wage will have...

What do you think is the effect an increase in the legal minimum wage will have on the labor market? Explain the effect on both price and quantity of labor. Also explain if the increase is justified or not and why so, in terms of its impact on the labor market.

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Answer #1

Dl is demand for labour and Sl is supply of labour.We is the equilibrium wage rate.Wm is the minimum wage rate.

Increase in minimum wage can be justified if the wage offered was less than the equilibrium wage.

Wr is the wage rate offered.In this case there was excess demand in the market.Setting a minimum wage=equilibrium wage would set the labour market in equilibrium.So,increase in minimum wage is justified only when wage offered is less than equilibrium wage rate.

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