Free «Microeconomics Study» Essay Sample

Introduction

Microeconomics is a branch of economics that refers to the study of how individuals, firms and households make decisions about allocation of limited resources as especially witnessed in the markets where there is sale of goods and services. In economics, elasticity is what economics understands as the responsiveness of demand and supply in response to price and income changes. The minimum wage is a law which targets to bar the workers who contribute less than $7.25 from participating in the labor market (Greenhouse, 2007). The aim of this essay paper is to identify the elastic condition which can actually translate to the decrease in employment for workers who earn less than the new increased minimum wage.

A critical value of elasticity of labor demand exists where low-pay workers are made better off when the elasticities are higher by the increase in the minimum wage rate. Unfortunately, this critical value decreases with benefits from unemployment. It is shown that workers would gain when the minimum wage is increased with some benefit levels of unemployment. The need of raising the minimum wage with an aim of improving the low-wage workers’ welfare is closely connected with their labor’s inelasticity.  Thus, if there is more labor elastic demand, a minimum wage rate increase will make workers better off than in the critical value. This proves that the labor demand’s elasticity decreases with unemployment benefit (Danziger, 2007).

As the minimum wages are increased, there is a subsequent fall in the demand for labor. This is because the firm will not make profits if it employs many people. Therefore, a rise in the minimum wage will lead to increase in the labor supply since people are attracted back to work. The elasticity of demand and supply curves showing for changes that occur in labor will determine the amount of unemployment.  When the demand for labor is constant, higher labor supply and the prices are kept high, then only the skilled benefit from employment opportunities leading to crowding of least skilled labor market, hence unemployment (Biz/ed, n.d.).

Conclusion

There is a close relationship between an increase in the low-wage works rates, employment and elasticity conditions. Increasing the wages of workers results under decreased labor elasticity demand actually causes unemployment. Therefore, in my opinion, there should be no raising the wages, for the reason of preventing unemployment and also reducing unemployment costs.

 
   

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