The minimum wage is the lowest wage that employers can legally pay workers.

• Most countries have some sort of minimum wage policy.

• In the United States, Canada, Australia, and many European nations, the minimum wage is set on an hourly basis.

• The minimum wage is set on a per month basis in Chile and China, and on a per day basis in India.

The nominal value of minimal wage is expressed in current dollar values and is not adjusted for inflation.

The real value of minimum wage is expressed in constant dollar or inflation-adjusted values.

The real value of the minimum wage reached its peak in 1968, and although the nominal value of the minimum wage has been increased many times since then, these increases have not kept pace with inflation.

When state and federal minimum wages are different, workers are entitled to whichever minimum wage is higher.

Because the minimum wage is a type of price control, we can use the demand and supply model to assess how the minimum wage will affect the quantity of labor demanded and supplied.

Increases in wages cause the quantity of labor demanded to decrease and the quantity of labor supplied to increase.

Unemployment occurs when there is a surplus of labor in the market.

The below-equilibrium minimum wage has no impact on the labor market at all, since it does not impact either the equilibrium wage or quantity of labor hired.

The workers who remain employed at the new minimum wage are winners from the minimum wage because the minimum wage causes their incomes to rise. One could argue that firms who sell products to these workers will also win from the minimum wage because the workers' increased incomes will generate an increase in their demand for normal goods.

• Although the workers who keep their jobs are clearly better off because of the minimum wage, the net impact of the minimum wage on workers overall is less clear.

• Because workers are the producers in the labor market, we can use the concept of producer surplus to measure the overall impact of the minimum wage on workers in the labor market

• Because workers are the producers in the labor market, we can use the concept of producer surplus to measure the overall impact of the minimum wage on workers in the labor market.

• Whether the increase in producer surplus is larger than the decrease in producer surplus depends on the elasticity of the demand and supply curves, so we cannot make a clear theoretical prediction about the net impact of the minimum wage on workers in the labor market.

• The minimum wage may also cause some firms to cut finding for employee benefits such as employee health insurance, paid sick leave, employee training, or other benefits. Employees who face these types of cuts are also losers from the minimum wage.

Because consumer surplus falls when the minimum wage is imposed, businesses are losers from the minimum wage. In addition, the minimum wage generates a deadweight loss in the labor market.

An increase in the cost of labor to business firms will cause firms to decrease the supply of their product. The decrease in supply will cause an inward shift in the supply curve for the product, an increase in the equilibrium price of the product, and a decrease in the equilibrium quantity of the product sold.

• So consumers will face higher prices for products and find fewer products available when the minimum wage is imposed.

• The degree to which prices rise depends on the size of the supply shift and the elasticity of demand for the good.

• Goods that have more elastic demand will have relatively small price increases, whereas those that have more inelastic demand will have relatively large price increases.

• Either way, consumers are losers from the imposition of the minimum wage.

Winners include those who keep their jobs, hours of work, and benefits when the minimum wage rises. Losers include those who lose their jobs, see their work hours cut, or are not l1ired into jobs at the minimum wage.

• Businesses and customers also lose from the imposition of the minimum wage. The fact that there are winners and losers from minimum wages makes them controversial policy tools.

Minimum wage laws are most often touted as antipoverty policies. Most workers affected by minimum wage laws are in low-paying jobs and have relatively low levels of labor market experience.

Indeed, the majority of those employed at or near the minimum wage are young workers ages 16 to 24, workers in part-lime jobs, and relatively low-skilled adult workers.

PROPONENTS

• Minimum wages help the poor by raising their incomes. This is true for workers who are able to keep their jobs and level of employment when the minimum wage rises.

• The increase in worker incomes does not come at the direct expense of tax payers, because the minimum wage is paid by employers rather than the government.

• Because the minimum wage only raises the incomes of those who are working, it provides better employment incentives than do welfare or other government income transfer programs to the poor.

OPPONENTS

• Because minimum wages benefit relatively few poor workers at the expense of other poor workers, businesses, and consumers, minimum wages do not reduce poverty and instead reduce overall social welfare.

• Although some workers are able to keep their jobs when the minimum wage increases, others see their employment opportunities reduced because firms decrease the quantity of workers they demand.

• The minimum wage may also discourage firms from investing in training for their workers. In addition, opponents argue, the minimum wage provides incentives for businesses to raise the prices of their products, generating increased costs for consumers.

• by raising the cost of labour, minimum wages provide incentives for some businesses to use substitute inputs like machines or lower-cost workers in foreign countries instead of domestic workers.

Although the minimum wage helps some workers by increasing their incomes, the minimum wage hurts other members of society by generating unemployment, reduced profits, and higher prices. Research evidence indicates that the minimum wage is not effective at reducing poverty.