Minimum wages is a legality that is imposes by the government in the labour market which means employers are not allowed to pay the employees under the wage impose by the government. This is happen to the workers in Minionland where the minionion government announced the minimum wages to be increases to M$900 per month due to the increase of living cost of the country. The new rate of wage represents 18.8% increase that affecting 128500 low-skilled workers in Minionland .
Diagram below shows the supply and demand curve of labor market before the M$900 new minimum wage impose by the government.
Diagram 1 is made based on the assumption that the minimum wages before ...view middle of the document...
From the diagram, the surplus or employment rate increase from Qs1 to Qd1, to Qs2 to Qd2 which means the firm are willing to employ fewer workers when higher minimum wage is set out of 128500 workers. The number of unemployed workers is increase by Qd1Qd2 and Qs1Qs2.
Other than that, the consumers surplus when new minimum wages is set become smaller than before. The consumer surplus based on diagram 2 is reduced from area AB to only A which means the total gain for firm are lower compared to before new minimum wage imposed. Meanwhile, the producer surplus in new minimum wages curve are increase from area C to BC on the diagram. This means the producer which is the workers in this market gain much higher profit after new minimum wage imposed.
The deadweight loss also affected from the new minimum wages. The deadweight loss also increase from area F to area DEF. the summarise of implication of imposition of new minimum wage can be seen in table 1 below:
Old minimum wages M$730.80 (assumption) New minimum wages (M$900) changes
Consumers surplus A+B A -B
Producers surplus C B+C +C
Deadweight loss F D+E+f +E+F
The purpose of imposition of minimum wage is to protect the supplier which in this case is 128500 low skilled employees of Minionland. On the other hand, the government are trying to make the job market fair for all without discrimination rather than having a vast amount of underpaid workers. This law are imposed so that everybody can afford the increasing living cost.
Due to the increase of prices of basic goods and essentials the minimum wages is increases so that the people of Minionland could afford the necessity. That is why the consumer surplus is increase so that the employees of Minionland could have the profit made in the market.
The high-skilled employees of Minionland could benefit in a way when higher minimum wages is imposed their income is boost since a raise in the lowest wages pushes all other wages upward. 128500 of low-skilled workers will get a guaranteed boost in income when the minimum wages is guaranteed.
the firm will benefit from it due to increase in productivity of low-skilled workers. Since they have nothing to offer complementing with the new minimum wage. they will increase their productivity so that the workers
However, the increase in minimum wages also result in increase in unemployment rate of low-skilled workers. This can be explained by the surplus made in the diagram 1 and 2. The firm who are hiring will impose a stricter and restraint criteria for low-skilled worker as they see the increased in minimum wage affected their operating cost and expenses. As we know the main goal of firm is to maximising profit, so they will hire fewer workers among 128500 thus increasing the unemployment rate.
For the firm, since they are maximising the profit, firm tried to match the minimum wages policy so it result...