A Balanced View On The Minimum Wage - 1928 Words

Introduction In a standard model for a competitive market, suggest that if the price of labour is artificially altered, this will then alter the demand curve, which will ultimately mean the least skilled will lose their jobs. This thinking has led to some economist to oppose against the minimum wage because it will cause higher unemployment. This has also been stressed by Milton Friedman, who received the Nobel Prize in 1976, has called the minimum wage a form of â€Å"discrimination against low skilled workers†. In this essay, I will look to give a balanced view on the use of minimum wage. The minimum wage debate â€Å"is one of the most studied topics in economics† (Beeton, 2013) The minimum wage was first introduced in the United Kingdom (U.K)†¦show more content†¦Whilst the law of supply tells us that if there are more jobs in the market these will increase the wage because firms need workers, this is why the supply curve is positive sloping. With both these there will be an intersection between the two curves, this is also known as the equilibrium which is when supply meets good and this is the most effective combination of the supply of work and the amount they workers get paid. This is shown in figure 1. Figure 1 Figure 1 shows a standard supply and demand model, where the demand curve has a negative correlation, whilst the supply curve is positively correlated. The equilibrium wage is denoted by Q* and W*. With the use of government intervention, which in this case is the minimum will offset the equilibrium that we can see in figure 1. So with a price floor being placed into the supply and demand, we can see the effects demonstrated in figure 2. As we can see the minimum wage is above the equilibrium wage, therefore this will take some workers out of the market because employers wouldn’t want to pay a higher wage to a potential employee, which will therefore cause low skilled workers to not be able to get jobs and effectively cause unemployment which is represented below the dotted line of the minimum wage. Figure 2 Figure 2 shows a supply and demand model of labour, this