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Price floors in the labor market: living wages and minimum wages

In contrast to goods and services markets, price ceilings are rare in labor markets, because rules that prevent people from earning income are not politically popular. There is one exception: sometimes limits are proposed on the high incomes of top business executives.

The labor market, however, presents some prominent examples of price floors, which are often used as an attempt to increase the wages of low-paid workers. The U.S. government sets a minimum wage    , a price floor that makes it illegal for an employer to pay employees less than a certain hourly rate. In mid-2009, the U.S. minimum wage was raised to $7.25 per hour. Local political movements in a number of U.S. cities have pushed for a higher minimum wage, which they call a living wage . Promoters of living wage laws maintain that the minimum wage is too low to ensure a reasonable standard of living. They base this conclusion on the calculation that, if you work 40 hours a week at a minimum wage of $7.25 per hour for 50 weeks a year, your annual income is $14,500, which is less than the official U.S. government definition of what it means for a family to be in poverty. (A family with two adults earning minimum wage and two young children will find it more cost efficient for one parent to provide childcare while the other works for income. So the family income would be $14,500, which is significantly lower than the federal poverty line for a family of four, which was $23,850 in 2014.)

Supporters of the living wage argue that full-time workers should be assured a high enough wage so that they can afford the essentials of life: food, clothing, shelter, and healthcare. Since Baltimore passed the first living wage law in 1994, several dozen cities enacted similar laws in the late 1990s and the 2000s. The living wage ordinances do not apply to all employers, but they have specified that all employees of the city or employees of firms that are hired by the city be paid at least a certain wage that is usually a few dollars per hour above the U.S. minimum wage.

[link] illustrates the situation of a city considering a living wage law. For simplicity, we assume that there is no federal minimum wage. The wage appears on the vertical axis, because the wage is the price in the labor market. Before the passage of the living wage law, the equilibrium wage is $10 per hour and the city hires 1,200 workers at this wage. However, a group of concerned citizens persuades the city council to enact a living wage law requiring employers to pay no less than $12 per hour. In response to the higher wage, 1,600 workers look for jobs with the city. At this higher wage, the city, as an employer, is willing to hire only 700 workers. At the price floor, the quantity supplied exceeds the quantity demanded, and a surplus of labor exists in this market. For workers who continue to have a job at a higher salary, life has improved. For those who were willing to work at the old wage rate but lost their jobs with the wage increase, life has not improved. [link] shows the differences in supply and demand at different wages.

Questions & Answers

what is rationality?
PRINCE Reply
can some one help to make my micro economics assignment?
SYED Reply
what kind'a assignment it Is?
mustaqeem
Micro economics
SYED
what is economis
Tunu Reply
what is demand curve
Anyars Reply
what are consumer preferences?
mustaqeem
why chapter revenue is not given?
Anjali Reply
idk
SYED
ok
Anjali
what is monopolistic competition
Rahul Reply
what is the geographical explanation of the ppf
Mawumenyo Reply
what is economics? what is scarcity?
Samuel Reply
economics is a science which study's human behavior in a relationship of ends and scares means which has an alternative use
Paul
economics is the study of choices. scarcity the limited nature of society.
Jaweria
relationship between AR,MR,and price elasticity of demand
Priya Reply
The relationship between AR, MR and elasticity of demand is very useful at any level of output. This relationship is very useful in the price-determination under different market conditions. ... It means elasticity of demand at any point on the demand curve is the same thing as the elasticity on the
Rahul
thank you
Priya
Explain the concept that human wants are insatiable.
Agbaji Reply
Human wants are unlimited but the resources out there to satisfy these wants are limited. This is what is the core of economics
Nithin
Scarcity or the limited resources makes the individual in a society to allocate the resources in a way which can derive the most satisfaction from it. Optimal allocation of resources is a fundamental problem in economics
Nithin
scarcity refers to the basic economic problem the gap between limited- that is scarce–resources and theroetically limited wants. the situation requires people to the makes decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants and possible
KOMAL
(also called a production possibilities frontier) a graphical model that represents all of the different combinations of two goods that can be produced; the ppc capture scarcity of resources and opportunity cost
KOMAL
Advantage and disadvantage of microeconomics understand the working of the economic. the knowledge of microeconomics is indispensable to know the working of the economic.... 1 efficient allocation of resources.... 2 useful in business decision-making.... 3 study of human behaviour
KOMAL
4 formulation of public policies... 5 may not be true in aggregate
KOMAL
tha meaning of ppc production possibilities curve and ppf meaning production possibilities frontier
KOMAL
welcome
KOMAL
microeconomics is the study of individual, household and firms ' bheaviour in decision making and allocation of resources. it generally applies to markets of good and services and deals with individual and economic issues.
KOMAL
delhi
KOMAL
No i'm not a teacher
KOMAL
what means ?
KOMAL
what do you do .
Romy
I'm a student
Romy
human want are unlimited while resources are limited
Seglah
for example, the hour in a day is very limited in a way that, your have just 24 hour to do everything possible in the day ....sleeping, bathing, going to work or school, and many more .....
Seglah
and for the microeconomic,..... is a brunch of economics which deals with smaller units such as household, individual, firms
Seglah
they are insatiable because they can not be satisfied
Mautsueni
Wants are insatiable because they keep on increasing... More the merrier is in human nature.
Rameez
characteristics of human needs
james Reply
want is per capital income
Ume Reply
per person income
Wani
thanks
Ume
per capita income means per person income
Wani
Wani Ruhe. are u an economics student?
Tahir
yes
Wani
ume Rubab most welcome
Wani
yeh kya chalan yeit🙄
Danish
wani Ruhe, Kahan se ho?
Tahir
what are the limitations of economics?
Piyush
I think assumptions are limits of economics which the Economist gives
Wani
but if get question in exam.. what will the answer?
Piyush
What is national income and circular flow of income
Ridwan
what is elasticity
King Reply
Elasticity is an economics concept that measures responsiveness of one variable to changes in another variable.
characteristics of robbins defination
sweta Reply
who is an indifferent consumer?
KEANGO Reply

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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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