Unemployment particularly in South Africa is a serious matter that needs to be dealt with through investing a lot in education and training. It can be true that wage rate contribute to unemployment but this essay will discuss wage rate and explain how it could contribute to unemployment if it is below full employment. Thus it will define and discuss minimum wage as it is set above the equilibrium because above the equilibrium it is believed that it leads to unemployment. In explaining the minimum wage this essay will use a graph to illustrate impact of an imposed of a minimum wage. The advantages and disadvantages of minimum wage will be also discussed. Therefore it will conclude on whether minimum wage should be imposed or not and whether minimum wage is effective or not. Without any government interference in the market for labour, wage rate is determined where labour supply is equal to labour demand. This means that at a point of equilibrium within the market and the economy has reached it is full employment (Froyen, 2009: 43). “Wage rate is the price of labour that firms pay workers in terms of hours worked” (Froyen, 2009: 43). Therefore firms as profit maximizing will be willing to hire labour at a lower wage rate, meaning at a lower wage rate they will be willing to hire more workers in order to increase the firms’ output. Firms prefer paying less wage rate for more working hours. If government does not intervene in the market with influencing wage rate, firms will take advantage to exploit workers by paying employees small amounts with longer working hours (Froyen, 2009: 44). Wage rate and its contribution to unemployment:
People sell their labour in exchange for money which is in this case real wage (Slavin, 1989: 757). If firms can produce its target output without making any loss and households supply its labour without making any sacrifices then the market for labour is stable. Should firms decrease wage rate, then the problem will occur because the...
Please join StudyMode to read the full document