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Chapter 4: Q 22. (page 105)

Suppose that a 5% increase in the minimum wage causes a 5% reduction in employment. How would this affect employers and how would it affect workers? In your opinion, would this be a good policy?

Short Answer

Expert verified

This policy is good or bad is based on various situations and variables.

Step by step solution

01

Step 1. Given information

A 5% increase in the minimum wage causes a 5% reduction in employment.

02

Step 2. Introduction

When the minimum wage increases by 5%, this will automatically result in that employers will hire fewer employees because now the increase in wages of workers, and by this their cost of production increases. So, to make their cost less they will not hire more and reduce their production cost.

03

Step 3. Explanation

They take more work from a smaller number of employees by increasing their wages and the standard of living of the employees also increases. The worker's purchasing power increases, their standard of living increases, now they fulfill their luxurious needs also.

On the other hand, because of this wage increase the employment decline and unemployment increases in the economy, so the increase in the minimum wage is not a good policy for the economy.

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Most popular questions from this chapter

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