Question

Markets seek equilibrium, and the demand for goods and services will come to an equilibrium with supply of goods and services. When markets are not in equilibrium, surpluses and shortages, as well as underground markets, can exist. Sometimes, the government may want to intervene in markets to try to help reduce economic hardships.

Analyze the impact of an increase in the minimum wage from the current level to $15 per hour. How would the following be affected?
a. employment of people previously earning less than $15 per hour
b. the unemployment rate of teenagers
c. the availability of on-the-job training for low-skilled workers
d. the demand for high-skilled workers who are good substitutes for low-skilled workers
Review the mechanics of price floors and price ceilings.

Answer 1

An increase in the minimum wage to $15 per hour can have various effects on employment, unemployment rate of teenagers, availability of on-the-job training for low-skilled workers, and demand for high-skilled workers.

Step-by-step explanation:

A minimum wage increase from the current level to $15 per hour can have several effects:

a. Employment of people previously earning less than $15 per hour: One potential effect of an increase in the minimum wage is that some employers may not be able to afford to pay their employees the higher wage, which could lead to a reduction in employment for low-wage workers. However, empirical evidence suggests that the overall impact on employment is minimal.

b. Unemployment rate of teenagers: Teenagers may be more likely to be affected by an increase in the minimum wage, as they often hold jobs in industries that pay the minimum wage. If employers reduce hiring or cut back on hours to compensate for the higher wage, it could lead to an increase in the unemployment rate for teenagers.

c. Availability of on-the-job training for low-skilled workers: Higher minimum wage could potentially lead to a reduction in on-the-job training opportunities for low-skilled workers. As employers may be less willing to invest in training if the cost of labor increases.

d. Demand for high-skilled workers who are good substitutes for low-skilled workers: An increase in the minimum wage may lead to an increased demand for high-skilled workers who can perform similar tasks as low-skilled workers. Employers may choose to substitute low-skilled workers with high-skilled workers if they can afford to pay higher wages.

Overall, the impact of an increase in the minimum wage on these factors will depend on a variety of factors including the elasticity of labor demand and the specific characteristics of the labor market.