Minimum Wage Essay

1541 Words7 Pages
Labour Minister Simon Bridges announced the minimum wage has been raised to $13.75 from 1st April 2013. (Kate, 2013, February 26) The amount of minimum wage is scheduled increase to $15 per hour in the next few years. This will lead to some impacts to the New Zealand economy, such as create unemployment, especially for young people and unskilled workers. However, minimum wage could reduce the income inequality and poverty in New Zealand. Minimum wage will directly increase the labour cost for all the firms. As the production cost increase, and assumes that the profit remain the same, the firm might increase the price of product or cut the working hours or the number of staffs. That’s indicate the unemployment will increase. However, the effect of a minimum wage on unemployment is uncertain. It depends on the labour market structure. In the competitive labour market, the minimum wage leads more unemployment and less job opportunities. The competitive labour market can be described by the simple supply and demand curve model. Where the market is free to adjust, there is no involuntary unemployment at the equilibrium point. However, after the government imposed a minimum wage of $13.75 on 1 April 2013. The minimum wage of $13.75 is set above the equilibrium wage. This indicates that the supply of labour would be greater than the demand of labour at that price. This results in a labour surplus and creates unemployment. (Gans et al., 2012) However, if the labour market is monopolistic, the higher minimum wage might not cause unemployment. Monopolistic labour buyers always set low prices, which is economically inefficient. Essentially there is waste which makes society as a whole worse off. However, after the government imposed a binding minimum wage, it will bring the supply and demand equilibrium closer to its most efficient levels. Therefore, a minimum wage will

More about Minimum Wage Essay

Open Document