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27 Aug 2018

. Low-skilled workers operate in a competitive market. The labor supply is Qs = 10W (where W is the price of labor measured by the hourly wage) and the demand for labor is Qd = 240 – 20W. Q measures the quantity of labor hired (in thousands of hours).

a. What is the equilibrium wage and quantity of low-skilled labor working in equilibrium?

b. If the government passes a minimum wage of $9 per hour, what will be the new quantity of labor hired? Will there be an excess demand or excess supply of labor? How large?

c. What is the deadweight loss of a $9 minimum wage?

d. How much better off does the $9 minimum wage make low-skilled workers (in other words, how much does producer surplus change), and how much worse off are employers?

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Casey Durgan
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29 Aug 2018

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Related questions

8.The demand for labor by an industry is given by the curve L = 1200 − 10w, where L is the labor demanded per day and w is the wage rate. The supply curve is given by L = 20w. What is the equilibrium wage rate and quantity of labor hired? What is the economic rent earned by workers?

9.Using the same information as in Exercise 8, suppose now that the only labor available is controlled by a monopolistic labor union that wishes to maximize the rent earned by union members. What will be the quantity of labor employed and the wage rate? How does your answer compare with your answer to Exercise 8? Discuss. (Hint: The union’s marginal revenue curve is given by MR = 120 − 0.2L.)

Consider the market for labor depicted by the demand and supply curves that follow.

Complete the following table with the quantity of labour supplied and demanded if the wage is set at $15.00. Then indicate whether this wage will result in a shortage or a surplus. 

        Wage            Labor Demanded             Labor Supplied             Shortage or surplus

(Dollars per hour) (Thousands of workers) (Thousands of workers) 

     

Suppose a senator considers introducing a bill to legislate a minimum hourly wage of $15.

Which of the following statements are true? Check all that apply.

1. In the absence of price controls, a surplus puts downward pressure on wages until they fall to the equilibrium.

2. In this labour market, a minimum wage of $11.50 would be binding.

3. If the minimum wage is set at $15, the market will not reach equilibrium.

4. Binding minimum wages cause structural unemployment.  

 

 

 

 

Since 2009, the national minimum wage has been $7.25 per hour for most occupations in the private sector. Over the past several years, support for an increase in the minimum wage has come from a wide variety of sources, including President Obama administration.  Many of those who support an increase in the minimum wage believe this is one way the government should exercise its social responsibility in an attempt to reduce poverty. The following items address the idea of raising the minimum wage from the current federal minimum of $7.25 per hour.

 

1) Minimum wage is a price floor, so discuss an increase in the minimum wage from a supply and demand standpoint, making sure to address the concept of surplus with respect to the quantity of labor supplied and the quantity of labor demanded that is generated by this price floor.

 

2) What will be the impact on the prices of the products produced by workers working at or near the minimum wage level, and how will this affect overall consumer purchasing?

 

3) Discuss any potential changes in the incentives for low-skilled workers to increase their human capital, and for employers to substitute capital inputs (technology and automation) for labor.

 

4) What might be the impact on government spending on entitlements such as welfare, food stamps, and unemployment compensation in light of the fact that changes in the minimum wage can create changes in unemployment and underemployment?

 

Based on your responses, do you believe that the minimum wage should be raised, lowered, remain as it currently is, or be altogether eliminated? Explain your answer, and make sure to address any social responsibility the government should have regarding the well-being of its citizens with respect to the setting of wages in the private sector

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