Answer to Question #109197 in Microeconomics for Mpho

Question

According to department of Labour's new rates domestic workers working in area A (bigger metropolitan areas)who work more than 27 ordinary hours per week, must be paid minimum wage of R13,69 per hour.
Workers who works fewer than 27 hours per week must be paid a minimum wage of 16,03 per hour.

With the aid of a diagram, discuss the welfare effects of this new legislation if the new minimum wage is (1) below the equilibrium wage and (2) above the equilibrium wage rate with labour hours as your quantity variable

Answer 1

1)

Demand for labor will exceed supply, but the value of the proposed wage will lead to a decrease in welfare.

2)

Demand for labor will be much less than supply, the size of the proposed wages will increase the welfare of those who will have work. This situation can cause unemployment in a certain proportion, as entrepreneurs will not be able to hire more workers than the required minimum.