Free market wage rate and employment level

Reference no: EM1373804

In 1996 Congress increased the minimum wage from $4.25 to $5.15 every hour. Some people advise that a government subsidy could help employers finance higher wage. This exercise examines the economics of a minimum wage and wage subsidies IN A MAKE-BELIEVE COUNTRY.

Suppose the supply of low skilled labor is given by LABOR SUPPLY = 10*w millions where w is the wage rate [in dollars per hour]. The demand for labor is given by LABOR DEMAND = 80 - 10*w millions.

[A] What will be the free market wage rate and employment level?

[B] Assume the government sets a $5.00 per hour minimum wage. What will be the employment level?

[C] Assume the government pays a subsidy of $1 per hour directly to the employee. What will be the market wage and employment level? How much will the government pay per week [suppose every laborer works 40 hours].

Reference no: EM1373804

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