Question

What are the conditions under which a minimum wage may be good for an economy?

Answer 1

A minimum wage is likely to reduce the extrimities of poverty whereby many people are out of poverty with a higher wage rate. It is true that not many people will get the already reduced number of jobs, but those who get will experience a higher standard of living. This is likely to help the overall economy as well.

As consumers these workers are likely to spend more which brings more money to the circular flow. The health status of families of these workers is likely to improve with higher wage rate. When wages are higher, workers who got the job feel more loyal to the employer which reduces the employee turnover. This is beneficial for the employers as they can reduce the cost of training and recruiting the staff. These are some benefits of having a minimum wage in the labour market.