Macroeconomics Effect of Raising the Minimum Wage

Introduction

The study of minimum wage is a part of the study of the labor market. Economists have succeeded in analyzing the market forces that rule suppliers and consumers of labor in a very similar way as the study of markets of goods and commodities is studied in the classic theory of Microeconomics. This is, in the market of labor there is a supply and demand, all the same as there is a demand and supply for goods. Following the classical microeconomic concepts, and idea of equilibrium derived from demand and supply, also works in the context of labor as commodity that is being traded.

In labor economics, the wage (usually labeled as w ) takes the place used by price, and labor force (usually labeled as L ) takes the place used by quantity supplied/demanded in the traditional supply and demand scheme. In the context of labor economics, the labor supply curve shows how much labor will be supplied by workers at a specific wage level w . The labor supply curve is expected to be upward sloping considering that it is likely that for higher levels of wage w , more workers will be willing to provide labor work. On the other hand, the labor demand shows how much labor firms will hire at a specific wage level w . The labor demand curve is expected to be downward sloping considering that it is likely that for higher levels of wage w , firms will be willing to hire less (as it will be relatively cheaper to find other kinds of productive means, such as machinery).

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