The lines on the Minimum Wage Labor graph have been correctly placed accordingly. See the explanations below.
What is minimum wage labor?
The minimal amount of compensation that an employer is compelled to pay wage earners for the job completed during a certain time and that cannot be decreased by a collective agreement or an individual contract is known as a minimum wage.
The demand and supply of labor at this wage rate is what is referred to as minimum wage labor.
What is the explanation for the new graph attached?
- The default market equilibrium point is E
- The equilibrium wage rate is OP; and
- The equilibrium quantity of labor demanded and supplied in the market is OL.
What happens when the government increases minimum wage?
- In the short run, the demand for labor (in accordance to the laws of supply and demand) shrinks from OL to OL1
- On the other hand, supply of labor increases from OL to OL2.
- The deadweight loss is represented by the region displayed by ACE.
- The entire amount of excess labor on the market is represented by the region illustrated by TCAP1.
- The region represented by TCSP is the surplus of labor resources that are available.
- The region depicted by PSAP1 is the surplus that would be made available to industry if it hired labor.
- The minimum wage line is already at the right place; as a result, there is no need to move it.
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