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Microeconomic Question 2
Minimum wage controls on 2 labor markets, labor in garbage collection and in street cleansing. As a result, workers in both markets have same wage rate, while the quantities of employment in market are 50000 units and 80000 units respectively.
However, an economist believes minimum wage control is binding in one
market but not in the other one.
Based on above info observed in the above labor markets, can
you tell which market is more likely to have a binding minimum wage control? Explain.
- ?Lv 51 十年前最愛解答
Please refer to the previous answer to question 1:
"Wage level is subject to the rules of demand and supply of the labor market, just as any other economic goods.
When minimum wage is set for street cleaning above the equilibrium wages, there will be more workers willing to work due to higher wages level, and the supply of street cleaners will increase... in the same time, there will be less demand from employers, since the wage is above the equilibrium free market wages. The combined effect will be an excess supply of street cleaners in the labor market."
Furthermore, when demand < supply, there is an excess supply for laborer. The market under price control is often less efficient than a free market, hence a lower market quantity of jobs will be contracted than the otherwise equilibrium market quantity. Accordingly, the lower figure 50,000 in the garbage collection might be the one subject to minimum wage control, since it is lower than quantity of jobs 80,000 utilized in street cleaning not under wage control.