New minimum wage rate means lowest paid will suffer says TUC

Based on article from ekklesia, http://www.ekklesia.co.uk/node/17090, the government has implemented an increase of the minimum wage from 15p to £6.08 an hour for those aged 21 and over. To those labors that would benefit from this, they might cheer as their standard of living should increase.

The diagram above shows the minimum wage rate imposed in the labor market. When the minimum wage rate is imposed above the equilibrium wage at W_m, the labor supplied will increase to L₂ and the labor demanded will decrease to L₁ as a result of high wage rate. At the minimum wage, there is the surplus of labor which is excess supply over demand.

Minimum wage will lead to unemployment. Surplus of productions will create waste of resource for government. The minimum wage rate is higher than the equilibrium wages, the quantity of labor supplied will improving the quantity of labor demanded. The use of minimum wage creates a price floor for the labor supplied.  Higher wage rate will increases the employment by encouraged them to work and become more ethical and productive and feel not likely to quit the job, which lower wage rate will discouraged them to work. When the wage rate increases, the quantity supply of unskilled labor also increase. As a result, excess supply that create surplus of labor would cause the unemployment for low skilled labor. In addition, there is less demand than at the equilibrium because not only the price for each unit of labor is more expensive and more supply than at the equilibrium, but also workers are lured by the higher wages they will be paid so there will be unemployment of labors. The market mechanism would lead to fall the price so that any excess supply is cleared. The price floor prevents the price from falling below it and markets don’t always achieve an efficient outcome which is the type of market failure.

There are many arguments for minimum wage like how increased wages for workers will increase the productivity of labors as clearly, those who are higher paid will be more motivated so will be more efficient in their work, major as labor productivity is a factor that can shift the supply curve from left to the right. However, how minimum wage will further increase the costs of production of the firm in the form of administrative costs due to the bureaucracy involved in assuring that the minimum wage is in fact, paid to workers, also significant as regulation and bureaucracy can shift the supply curve from left to the right.

When the lower wage workers will increases, the productivity of labors will decreases but, the demands for the goods will increases. The productivity of labors increases if there is a higher wage rate. Sometimes, the employment is caused by different of regional in economic growth by using workers in lower-wage countries. In addition, minimum wages do increase the standard of living for current workers who enjoy increase salary but it harms the standard of living of those who without a job as firms are less willing and able to hire labors which are due to their increase cost. With minimum wages increase, each country and region hopes to not only improve the quality of life of their people, but also rise domestic spending. Many people will have more money in their pockets to solve their monetary problems. That means they will also have the ability to increase their spending, generate new business and eventually raise the manufacturing rates.

The diagram shows inefficiency of a minimum wage. As a result a minimum wage increases unemployment. Firm’s surplus and worker’s surplus shrinks a deadweight loss arises.

Those people have jobs and keep them benefit from a minimum wage. Some people who search for the jobs and find them end up getting worse because the job search increases. When the minimum wage rate does not distribute workers, other organization will determined who finds the job. Firms are willing to hire more labors and they are willing to work more too. Furthermore, the impact of a minimum wage on employment levels depend in part on the elasticity of labor demanded and labor supplied in different industries. If labor demanded is relatively inelastic then the contraction in employment is likely to be less severe than if employees’ demand for labor is elastic will respect to change in wage rate. The effects of a minimum wage when both labor demanded and labor supplied are elastic in order to a change in the market wage rate. The excess supply creates much higher.

In my opinion, workers will make more money per hour and get to pay more taxes, which usually when minimum wage is increased other wages go up that amount. However, paying more taxes they may lose benefits from government that they are getting now.  They also may lose their jobs because the employees cannot pay higher wages and higher taxes. Unfortunately certain numbers of people are not physically able to be worth a higher wage and employers will have to let them go. When the taxes are higher, the incentive for businesses to spend money, which provides lower current income, but higher income in the future. When the lower taxes rate increases, the government profit will decreases. Therefore, lower taxes also equal to higher employment rate. Unemployment will be decreasing after taxes have been raised for a long time because of the small business owner has to raise prices and can afford to hire again in the end.