Economic | EssayIvy.com

Economic

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TopicEconomic
Most of the world's economy has a free market system, where commodity prices are free
to rise or fall above and below the equilibrium. In such a market, supply and demand may result
in exaggerated prices which may not be fair to the consumers or it may result in very low prices
which may not be fair to the suppliers. In such cases, the government is forced to come up with a
legal limit within which commodity prices must lie. All suppliers must, therefore, adhere to these
price limits. A price floor is, therefore, the minimum legal price within which a commodity is to
be sold, any price above this price is considered illegal.
The most common price floor set by many countries is the minimum wage. Minimum
wage is the lowest salary permitted by law that employers are allowed to pay their employees.
The minimum wage depends on the supply and demand of labor when the supply of labor is
high, the minimum wage always goes up. This is because when there are too many people to
work most employees tends to exploit the high labor supply by paying them below average
salaries thus government comes in to and set the minimum wage (Smith). When the government
increases the minimum wage, the supply of labor increases so will be the demand. When the
government increases the minimum wages, it means that employers will have to increase the pay
of their workers, as a result, their expenditure will have to increase. The employers will,
therefore, have no choice but to increase the prices of commodities in order to cater for the
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increased salaries. Such increment may decrease the product demand hence result in losses. The
employers at this point will have no option but to fire some of its employees so as to stay afloat,
the most affected are the unskilled employees who are the main beneficiaries of minimum wage
increment. Thus there will be a surplus of labor (Williams). Therefore increased minimum
wages will result in a surplus of labor especially of unskilled workers who are the lowest paid
and the beneficiaries of such increments as employers will decide to do away with them so as to
avoid the extra expenditures.
The objective of most business entities is to make profit, these organization does so by
trying as much as possible to reduce their expenditures on factors of production. Because human
resource are also considered to be part of the factors of production, most companies opt to hire
unskilled laborers who will work long hours at minimal pay. In most business entities nearly
70% of employees are mostly unskilled whose salaries is dictated by the management of the
organization. When the federal government comes up with laws to increase minimum wages, this
will threaten most businesses profits by increasing their expenditure on human resource
(Jeffrey). As a result, most companies will opt to invest in technologies with capabilities to do
the work previously done by the unskilled laborers and hire one skilled person to operate the new
technology, in the process millions of jobs will be lost resulting in increase in the number of
unskilled workers with no employment. Employers can also opt to hire interns in place of
unskilled workers whose minimum wages have been increased, these interns can thus work for
them for free or at a minimum wage set by the employer. In summery it is evident that increase
in minimum wage leads to unemployment especially of unskilled workers who are the main
beneficiaries of such laws. In the long run this increases the supply of unskilled labor in the
market as employers attempt to reduce its employees in a bid to maximize revenue.
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Work sited
Smith, Noah. "A Higher Minimum Wage wont Lead to Armagedon." (2016).
Williams, Walter E. "Ellitist Arrogance on minimum wage hurts minorities." (2016).
Clemens, Jeffrey, and Michael Wither. The minimum wage and the great recession: Evidence of effects
on the employment and income trajectories of low-skilled workers. No. w20724. National Bureau
of Economic Research, 2014.

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