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Understanding the Impact of Minimum Wage on Employment and Productivity

This excerpt discusses the arguments made by advocates of minimum wage legislation, highlighting a different perspective on its economic impact. Contrary to critics, proponents suggest that enforcing a minimum wage in monopsonistic labor markets can lead to increased wages without necessarily reducing employment. It posits that a minimum wage may enhance labor productivity by prompting firms to use their workforce more efficiently and by improving worker health and motivation. This text serves to challenge prevailing economic assumptions regarding minimum wage effects.

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Understanding the Impact of Minimum Wage on Employment and Productivity

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  1. Speed Reading • Read the following text. • When you are finished, answer the questions at the end. • Do not press any key. The text will begin automatically. • from: McConnell, C.; Brue, S. & Pope,W. (1990). Microeconomics (5th Canadian ed.), pp. 26, 46. Toronto: McGraw-Hill Ryerson

  2. Case For the Minimum Wage

  3. Advocates allege that critics have analysed the impact of the minimum wage in an unrealistic context.

  4. Inclusive unionism, advocates claim, presumes a competitive and static market.

  5. The imposition of a minimum wage in a monopsonistic labour market suggests that the minimum wage can increase wage rates without causing unemployment;

  6. indeed, higher minimum wages may even result in more jobs by eliminating the monopsonistic employer's motive to restrict employment.

  7. Furthermore, the imposition of an effective minimum wage may increase labour productivity, shifting the labour demand curve to the right and offsetting any unemployment effects the minimum wage might otherwise induce.

  8. But how might a minimum wage increase productivity?

  9. First, a minimum wage may have a shock effect upon employers.

  10. That is, firms using low-wage workers may tend to be inefficient in the use of labour;

  11. the higher wage rates imposed by the minimum wage will presumably shock these firms into using labour more efficiently, and so the productivity of labour rises.

  12. Second, it is argued that higher wages will tend to increase the incomes, and therefore the health, vigour, and motivation, of workers, making them more productive.

  13. The End Now please do the written quiz.

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