Effect of Minimum Wage
The government regulated the wages of the businesses that were mostly involved in the commercial activities. The minimum law wage was enacted by the Federal government to regulate interstate commerce. The large population in lower jobs is usually excluded from the minimum wage coverage
The economic theory suggests that when employers pay higher wages, they will be forced to employ few workers. This will make the industries affected by minimum wage increase to either hire new few workers or lay off workers. The law of supply and demand protects the industries from minimum wage coverage (Zipperer et al 2017). The economic theory thus predicts that unprotected industries should portray increases in employment or unemployment depending on industry’s absorption of new workers when minimum wage is raised. Due to increased competition for employment, the wages in the non-protected industries may either fall or rise slowly than normal when the Federal minimum wage is increased.
Additionally, the theory also predicts that when legal minimum is raised above the market value of workers, the non-protected industries will reduce absorbing workers. This will lead to an increase in the number of unemployed people. In a situation where unemployment develops in a region under normal market economy, the wages paid in such a region tend to be reduced. The lower wages will attract industries such as textile industries to be located in such an environment. The minimum wage laws tend to reduce the differences of wages between areas of normal employment and depressed areas. The laws will prevent the location of industries in depressed areas.
Unemployment Labor supply
Companies are not allowed to pay less amount of money per hour than the minimum wage the government imposes. For example, in the diagram above, the minimum wage is $6 with supply of labor being 48,000 hours. The supply and demand are not in equilibrium given that the company only needs 16,000 hours. Minimum wage created by the government imposes some consequences. The first consequence involves reducing the amount of labor hired in the market. The minimum wage helps in controlling the number of unskilled labor hired or employed. Companies tend to hire few workers in order to incur low cost and this reduces employment opportunities (Pabon, 2017). The second consequence is that at the government-imposed wage, there are many people who need jobs than are able to find jobs. The government minimum wage has led to creation of unemployment. For example, at wage of $6, there are 1000 people who would like to get jobs but only 400 jobs are available hence 600 people would be unemployed in the scenario.
The economic theory is true during the times a country suffers fewer jobs due to higher wages imposed. The World War II led to successive business cycles that made unemployment cases to increase. The Federal minimum wage law has caused the unemployment problem to be in America. Wages in some industries which were not covered by the minimum wage law, either stayed in the same point or increased by one percent or two in some areas. Thus, the theoretical prediction of wages in unprotected industries will either fall or rise slowly is true. The economic theory also shows that wages in covered industries were already higher than those of uncovered industries. Thus, the theory provides truthful information concerning the minimum wages effects. In addition, economic theory shows the effects of raising the legal minimum employment on low-wage industries. The impact of minimum wage has adverse effects on employment opportunities on all classes of labor.
In summary, the minimum wage created by government has led to regulation of interstate commerce. The companies within America have been regulated through the amount of money they pay workers per hour. Additionally, the process has led to creation of unemployment in the country. The law of supply and demand also shows how minimum wage influences a company’s employment of the unskilled labor.
Allegretto, S., Dube, A., Reich, M., & Zipperer, B. (2017). Credible research designs for minimum wage studies: A response to Neumark, Salas, and Wascher. ILR Review, 0019793917692788.
Del Carpio, X. V., & Pabon, L. (2017). Implications of minimum wage increases on labor market dynamics lessons for emerging economies.