The most common market that influences income is the labour market; it influences the jobs we get and also the wage rate (Parkin et al 2012). The labour market is a place where workers and employers interact with each other in order labour for wage. Employers in the labour market compete to hire the best labour force while workers compete for the best satisfying job (William E, 2013). The government intervene on this market to regulate workers being exploited from employers, the intervention also create problems for both the workers and employers. This essay will discuss the advantages and disadvantages on government intervention on this market. Firstly, we will discuss the advantages and ...view middle of the document...
Furthermore, minimum wage increase the revenue of a country whereby decreasing the cost of government social welfare allocation. It also motivates workers to join the workforce rather than undertaking illegal business and increased crime rate (Bernstein and Houston, 2014). With improved minimum wage people can be able to prove for their families with the necessities of life such food, and other things. The minimum wage also helps small businesses to adjust his business budget (Root N.G, 2014). With a minimum wage in place, small scale businesses knows what is they are expected to pay per hour for its workers and could help create new jobs in the company with the budgeting information. It could also make hiring of unskilled workers easier, the worker is informed on the expected wage which employers does not have to go through negotiation.
However, minimum wage creates unemployment (Parkin et al 2012). In a labour market, wage rate is determined by the willingness of workers to work (supply) and employers to hire them (demand). Worker productivity is the main determinant of what employers are willing to pay. Most working people are not directly affected by the minimum wage because their productivity hence their pay and a legislated increase in the price of labour will not increase workers' productivity; some workers will lose their jobs. Minimum wage laws mostly harm teenagers and young adults because they usually have little work experience and take jobs that require lesser skills (Henderson G.R, 2006). Economists looking for the effectiveness of the minimum wage on employment do not look at data on educated men aged 45; rather, they focus on teenagers and young adults.
A survey of minimum wage studies found that a minimum wage of increase 10% will reduce employment of by 1 % to 2% in California (Henderson D.R, 2006). A 15% increase in state minimum wage proposed in 2006 by governor Arnold Schwarzenegger, 35,000 to 70,000 unskilled jobs were affected which laid 1.5 to 3 % of young Californians out of work, while a 15% increase in minimum wage worldwide approximately affected 290,000 to 590,000 young people's jobs, and about 400,000 to 800,000 jobs overall. Also effect on relative poverty will increase due to a reduced workforce, leaving most people unemployed.
(Figure 5.3) Minimum wage and unemployment.
Figure 5.3 shows the minimum wage sets at €6 each hour. Any wage that is below the €6 an hour is illegal (in the grey-shaded illegal region). At 20 million hours are hired at a minimum wage of €6 but it is 22 million hours that are available, which leaves 2 million labour unemployed. Unemployment –AB will be created at 2 million hours a week. When 20 million hours are demanded, someone will ready to pay €4 for that 20 million that is available.
Figure 5.4 the efficiency of the minimum wage.
The above diagram shows the efficiency of the minimum wage the efficiency of the minimum wage. €6 an hour is the minimum wage which...