Minimum Wage Laws
Ä
Ä
Ä
Ä
Ä
The minimum wage is the lowest price employers can pay for labor.
The downward-sloping demand curve for labor represents the behavior of
firms. As wages rise, firms will demand less labor. As wages fall, firms
tend to hire more labor.
The upward-sloping supply curve for labor represents the behavior of
workers. As wages rise, workers will supply more labor, and as wages fall,
workers tend to supply less labor.
Imposing a minimum wage above the market equilibrium wage will cause a
surplus of labor and make unskilled workers less competitive in the labor
market.
Teenagers are most likely to suffer unemployment when a minimum wage
is imposed.
Firms’ demand for labor is represented
by the demand curve on the left. This
curve slopes downward because of the
inverse relationship between the wage
rate and the quantity of labor
demanded.
Households’ supply of labor is
represented by the supply curve on the
left. This curve slopes upward because
of the positive relationship between the
wage rate and the quantity of labor
supplied.
The intersection of the demand and
supply curves represents the market
equilibrium wage rate, w*.
The graph on the left illustrates how
the imposition of a minimum wage
w (w bar) creates a surplus of labor,
or unemployment. At a wage above
equilibrium, households are willing and
able to supply more labor than firms
demand.
www.compasslearning.com
Copyright ã 2006, Thinkwell Corp. All Rights Reserved.
1197.doc –rev 11/07/2006
As the pie chart on the left shows, less
than three percent of working adults
over the age of 30 receive minimum
wage. This evidence proves that
teenagers are most likely to suffer
unemployment when minimum wage
laws are enacted.
www.compasslearning.com
Copyright ã 2006, Thinkwell Corp. All Rights Reserved.
1197.doc –rev 11/07/2006