Application of Law of Demand on labour supply due to minimum wage rate Various state legislators and interest groups around the India are pushing for increases in the minimum wage. But when the minimum wage law confronts the law of demand, the law of demand wins every time. And the real losers are the most marginal workers, the ones who will be out of a job. As the law of demand state that as the price of a commodity increases the demand of that commodity decreases. As in the case of minimum wage (price of commodity) and demand of labour (commodity), as the minimum wage for the labour increases the demand for the labour decreases. As in the case of less productive worker the law of demand applies more actively, since the legislated increase in price of labour doesn’t leads to increase in labour’s productivity, because in open market labour’s productivity is the main determinants for deciding wage rate for a labour. The statement can also be justified by applying the law of supply i.e. as the rate of minimum wage increases more people will be willing to work at increased price level, while a smaller no. of jobs will be available at higher wages. The phenomenon is explained here with the diagram given below:
In the above diagram it is assumed that more workers are willing to work if paid higher wages. So in the diagram vertical axis shows wage and labour supplied on the horizontal axis. As with the increase in wage, quantity supplied for the labour increases, so supply for labour curve is indicated as OA. It is also assumed that less labour will be demanded by the employer if wage will increase, because it will be expensive for employer to hire or retain more labour. Therefore demand curve for the labour will be downward sloping i.e. BC. So at the point of intersection of demand and supply curve (point O) there lies a equilibrium point were...
Please join StudyMode to read the full document