Consider low-wage labour market

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Reference no: EM131109494

Consider a low-wage labour market. Workers in this market are not presently covered by the minimum wage, but the government is considering implementing such legislation. If implemented, this law would require employers in the market to pay workers a $5 hourly wage. Suppose that the current market clearing wage rate is $4 per hour, and that at this market clearing wage there are 600 employed workers. Further suppose that under the minimum wage legislation, only 500 workers would be employed and 200 workers would be unemployed. Finally, assume that the market has an upward-sloping supply curve and a downward-sloping demand curve, both of which are linear, and that the market reservation wage (the lowest wage at which any worker in the market would be willing to work) is $1. Use Method (2) to measure the net social welfare change that results from the minimum wage legislation, assuming that the workers who remain employed in the market are the ones with the lowest reservation wages and that these reservation wages fall between $1 and $3 (give numerical values for ΔCS, ΔPS and ΔNSW)

Reference no: EM131109494

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