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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

an increase in demand (while supply remains constant) what will happen to deh graph?
Thabiso Reply
what is going to happen to the graph if there is an increase in demand, While supply remains constant .
Thabiso
What will happen to the graph if there is an increase in demand While supply remains constant?
Thabiso
price will increase high than automatically demand will decrease
takshaveer
equilibrium ?
Issum
what is demand
Sarkwah Reply
demand is the willingness to buy a commodity backed by the ability to pay.
Runwell
demand is mere desire on commodity with ability to back up with purchasing power
Terkimbi
Equilibrium is when there's an equality between quantity demanded and quantity supplied
Victory Reply
Again the consumer will be in equilibrium if the price of the commodity is equal to Marginal utility of that product
daniel
wat is the law of supply
Agnes Reply
It's what* -The law of supply states that price and supply is relative. As all factors are equal, if price increases then quantity of supply there for increases.
Nathaniel
the law of suppy state that when prise is high, more commodity with be supply and when p is low less of the same commodity will be supply.
BEGE
It states that, "other things being equal, move supplied at a higher price than at a lower price ".
Murewah
okay
Agnes
it's state that the increased in prices will lead to decreased in supply
Asuquo
what is the theory of supply and the determinants of demand
Murewah
And please what is change in quantity supplied?
Agnes
guys why are you so quiet
Murewah
A woman has a television set which cost her $800 two years ago. A new set would cost her $1000 and she could sell her television set for $450. What is the opportunity Cost of keeping the old TV?
Murewah Reply
principle of effective demand?
Abubakar Reply
the is the situation in which the need of individuals exceed the available resource. increase in population rate and wrong decision making
esther Reply
what is the different between wants and demand?
Terkimbi
wants are what people desire to have but they can live without them and demand is a thing that is most wanted
Murewah
what are the demand pull inflation
Hijja
the higher the aggregate level of activity, the larger the proportion of areas and industries which experience excess demand for goods and labour of various sorts , and the more powerful is demand-inflationary pressure . Demand inflation is contrasted with cost inflation , in which price and wage
Murewah
increases are transmitted from one sector to another. These should be regarded as different aspects of an overal inflation starts , cost inflation explains why inflation once begun is so difficult to stop.
Murewah
what is the important difference between positive and normative economics
Umar
positive economics is the study of how an economy works in practice, as opposed to the theoretical study of how it should run in theory and normative economics is the party of economics that is concerned with how the economy ought to be run.
Murewah
positive economic deal with fact and also talks about how the economy actually is like while normative economic deal with value judgement and talks about how the economy ought to be like
esther
What is the difference between opportunity cost and choice
Murewah
opportunity cost are also known as forgun alternative why choice is to select one among alternative
Terkimbi
importance of economic
Zakaria Reply
satisfaction of human wants
Festo
economics is about to economise . discuss
Angel Reply
Underlines the efficiency aspect. Economise towards what: Economise factors to reach equal distribution of Material wealth or Just to operate optimally to Service demand, i. e. Run markets efficiently?
Homo
join the conversation
abba Reply
Hi I'm Ashnly Parker.
Murewah
what is terms of trade
Ibrahim Reply
different btn import and export
Angel
No question... This is nice
Gbenga Reply
hw can we solve problem of scarcity
Oigebe
scarcity is not necessarily a problem but a constant condition of the world. there are not enough resources to satisfy the unlimited wants.
Matthew
wee need to be cooperative
Zakaria
by unlimited resourses and abundant want
Angel
What is the economic problem
Murewah
inflation
Lazizjon
And what is demand pull inflation
Murewah
why do compute GDP?
steven Reply
can anyone shortly determine the word inflation.
Ibrahim Reply
Continous increase in the general level of prices or in the cost of living.
arshad
persistent increased in general price level
Machall
all correct...
paa
inflaction
Angel
rise in price.
Abubakar
deserving of money
Lazizjon
A persistent tendency for nominal prices to increase
Murewah
What is the problem of economic problem
Murewah
the father of economics
Reuben Reply
Adem smith
sj
Adem smith
Ajit
Adem smith sure
Adigwe
the father of economic regarding to adam Smith
Ibrahim
the father of political of economic and capitalism in his book and inquary in to the wealth of the nation.
Umar
Adam Smith his the father of economic
Mamudu
difference between injection and leakage
Asif
what is monopoly
Razak
Monopoly is a market structure where there is one firm who dominate the industry
wisdom
hi,, I am new here. please welcome me.
Mohammad
you are welcome
Adigwe
monopoly is the one characterized by a mkt power in which a firm is a price maker
Festo
Some member just ask questions but not answering so y this happen
Festo
Monopoly is a market where only one seller exists. No competition
Fred
how long does the patent right prevail the monopoly
Festo
no attempt
Zakaria
what is state farming
Sadiq
anybody to attempt
Festo
Hi, I'm a new member please will you welcome me
Murewah

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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