Impact of Minimum Wage on Unemployement Essay Example for Free

Impact of Minimum lease on Unemployement canvassWe cannot unambiguously conclude that a stripped-down hire change magnitude forget gain unemployment levels. Discuss.The essay is enlist as follows. Firstly, I would define some of the key terms. Secondly, I would outline the reasons for the statement. Lastly, I would provide the terminal remarks.Unemployment is when those members of the labour force who are volitioning and able to work cannot find a job. Minimum WageIn a perfectly competitive labour market, the equilibrium enlist should be W1, where labour put out = labour demand. Wages are artifici whollyy altered when the price floor is imposed. An increase in the wage rate encourages the economically inactive to enter the labour market, causing an expansion in the yield of labour. The minimum wage raises the marginal cost of employing workers, thereby causing a contraction of labour demand. From an excess supply of labour, only the workers who are skilled will be employed. The least skilled, thus least productive will be priced out of the market leaving them involuntarily unemployed. The change in employment levels is the product of the grab of labour demand multiplied by the proportional rise in the wage.Any increase in the minimum wage will be passed on to consumer prices. If demand for the product is inelastic, the increase price will not effect consumption of the good to a great extent. So employment rates would proceed relatively the same. The opposite effect would happen for elastic good. If labour costs conduct up a small proportion of total costs, then any increases in the wage rate would baffle smallish effect on employment, as total costs would have only increased by a small amount. Where labour and supply are some(prenominal) inelastic, employment costs are minimised. If they are both elastic, more(prenominal) jobs are lost.Although according to classical theories, the reason that minimum wage increase will increase unemplo yment levels is because minimum wage would increase the cost of labour, which lead to an increase in the cost ofproduction of the firm. Firms would have cut human resources (labour) in order for the firms to control their cost of production. As a result it would leads to a increase in unemployment rate. But in reality, it work diametrically.In fact the experience of the UK is that a 67% increase in the National Minimum Wages has reduced unemployment and increased employment. It would have lead to a strong Economic Growth. In period of economic growth, firms employ more workers as there is more demand to produce goods. Economic growth in the UK has averaged 2.5% since 1999In addition, the power of Monoposony should not be ignore. unsullied theory assumes that the labour markets are competitive, but in practice workers often face employers with buying power. This room firms are able to pay workers less than the market wage. Therefore, when a government artificially raises wages, fi rms can actually afford to pay them. It is argued minimum wage mandate is similar to anti trust regulation.Thus, it would lead to an increased productiveness. A study by David Metcalf found that firms responded to increased wages by increasing the productivity of workers, curiously in the service sector. This is important because it suggests that higher wages can actually help increase productivity in the economy.Firms would lower working hours in respond to the increase in the minimum wage. Rather than make workers redundant, firms have reduced the average hours worked. This is related to part 3, firms try to get higher productivity in a shorter time, so they can afford the minimum wage.Pass on Cost increases. Because the minimum wage affects all firms, it is easier for the cost increases to be passed onto consumers. e.g. because all cleaning firms have higher wage costs, they can all increase their prices. If the wage increase just affected one firm, they would become uncompeti tive.Firms would also think of different problems to avoided of Minimum Wage. Itis uncertain to ascertain the extent of this problem, but some firms have circumvented the minimum wage legislation by employing immigrant labour and paying them lower wages. It also makes it more attractive to employ young workers.To conclude, although an increase in minimum wage in theory would lead to an increase in unemployment, but in practical, it would not much negative impact on the employment rate. Therefore, we cannot unambiguously conclude that a minimum wage increase will increase unemployment levels.