The question that comes to everybody is that should we increase the minimum wage by too far. Does the minimum wage increase reduce the unemployment since now the current wage is high enough? Some people might think that we should increase the minimum wage in order to increase the labor supply. However, if we think deeply than this, there are more disadvantages than advantages of increasing the minimum wage. The farther.
Having to work a minimum wage paying job drastically effects an individuals economic status and morale however, this issue is often overlooked. Today, in the United States, wages in comparison to the cost of living is not realistic. The cost of living is increasing while work wages are staying the same. The cost of housing, goods, gas, and even college tuition are on the rise, yet the government wants us to close our mouths and act like everything is okay. What the government fails to realize is that without some sort of action the economy will only get worse.
What she meant by this was there is no guarantee that the equilibrium wage in the market would in fact be a living wage. When the government imposes a minimum wage, firms are not permitted to pay less than the amount that the government mandates. Suppose we are again in the base year, so the price level is 1. At this wage, supply does not equal demand. Figure
It is not always as good for the economy, as we think it is, because it creates surpluses, wasteful increases in quality, lost gains from trade and misallocation of resources. Minimum wage is one of the examples of a price floor. It is the lowest wage an employer may pay an employee and it is determined by law or contract. Increasing the minimum wage might seem like a great idea. However, it comes with many disadvantages.