Question

What happens to the quantity demand of labor when government establish a minimum wage

Answer 1

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Answer 2

Answer:

Simple logic dictates that when there is no lack of supply and prices of commodities rise, demand must decrease. Consumers of labor will look for alternatives if the price is arbitrarily raised in a sector of the labor market where there are a lot of jobless people. This would increase the unemployment rate. On the other hand, if labor was in low supply, there would naturally be a price increase due to the rivalry for employees.

Explanation:

Since most people are not suddenly lured to work for a few additional bucks, the supply of employees won't alter and those who wish to remain on welfare will do so. For minimal pay, many won't return the labor. The BIG shift would come from the falling demand, though. Many small firms would have to dramatically cut the number of employees they could afford if the minimum wage was raised (as many are hanging on by thin margins as it is). Companies would try to increase expenses (or automate, which I'll get to in a moment), or compel low wage workers to perform more work, or increase the burden of higher level employees. Entry-level labor is meant to pay the minimum wage. then why pay more? Can this individual handle extra work? more talent? Therefore, that employment is no longer considered to be minimum wage. So, by imposing a salary rise, you're telling corporations that workers are suddenly more skilled or able to do additional work. You guessed it, unemployment will increase. The entry-level newcomers on the verge of being dismissed will be replaced with a more senior candidate who is worth the extra pay. Consider McDonalds. Why would you pay a beginning fry cook $15 per hour when you can have a machine that consistently produces the best burger for less money? (long term). Why use a cashier when a touch screen would do? The larger initial cost is true, but it will shortly become equal. Your new crew is reduced from 12 employees to only 2 workers and a ton of machinery. The most automatable jobs will simply be mechanized if you say they shouldn't use machines, which is the fundamental fact of raising salaries. For the business, it is more effective and efficient. Keep in mind that if it doesn't make financial sense, it doesn't make sense. Don't assume that businesses would suffer in silence as a result of this since, in the end, they will err on the side of the law in pursuit of profits. It doesn't function like that. Minimum wage jobs are not meant to be living wage — it's meant to be entry level. Increasing minimum wage only encourages folks to stay at an entry level position for which there are immense consequences for small businesses and automation. A minimum wage increase will increase unemployment among the least skilled workers, and demand for them will significantly decrease in favor of illegal work, subcontracting, and automation.