Question

e- Is it possible that a min wage does not affect the level of employment? Explain and use labor supply and demand diagram to illustrate your answer. (10 points) f-Everything else equal, how does a labor-saving technological innovation (e.g. robots) affect the surplus of the workers in the presence of a minimum wage policy? Explain and use a supply and demand diagram for the graphical presentation of your answer, (10 points) g-Assume that we want to compare the likely impact of an increase in minimum wage in two states: Texas and Massachusetts. Assume that the only difference between these two states is that employers in Texas have more access to workers from black market and less access to automation technology compared to employers in Massachusetts. In which of these two states you expect the increase in minimum wage to be more successful? Draw two supply and demand diagrams (one for Texas and one for Massachusetts) to justify your answer. (20 points).

Answer 1

e.Minimum wage law is a an example of price flooring. As shown in diagram below. Demand and supply of labors is shown.Wage flooring takes wages up from equilibrium wages of We to Wf. Labor Quantity supplied is more than quantity demanded. This creates excess labors. Hence minimum wage laws do affect employment.

f. Availibilty of robots will decrease the demand for labors and hence as demand shifts to left, wages are expected to go down. However, wage drop will be stopped at minimum wage level. This will increase unemployment. As shown in diagram below, demand is shifting to left from D1 to D2. Wages going down from W1 to W2.

g. Minimum wage law will be more successful in Massachusetts. The reasons are: In Texas automation is not higher scale and also black market exists for labors. Hence employers can employ labors without giving minimum wages. However, this may be blessing in disguise as there will not be mass unemployment and people will keep on getting jobs.

In Texas:

The demand will remain at existing wages W_e.

In Massachusetts: The demand will be less at minimum wages as shown in question e diagram.

aed CR hik