Economics Essay Example | Topics and Well Written Essays - 500 words - 9

Economics - Essay Example Therefore, wages are considered a good indicator in employing people and expanding the business. Labor regulations like the ‘minimum wage’ affects the price signals in the market by disturbing the supply and demand. The differences between the supply and demand for labor could harm many people with the use of a minimum wage. This is true in the sense that increasing the minimum wage could result to an increase in the prices of goods. High prices of goods will eventually decrease the demand for the specific goods. Thus, people would tend to look for an alternative sources of similar item in order to maximize the value of their money. The SRAS curve would shift to the left; it means a decrease in the number of goods sold as prices of goods increases. (See Figure 1 – Aggregate Supply and Demand when Minimum Wage is Increased on page 4) Increasing the minimum wage could affect the U.S. international competitiveness and labor freedom. People who support an increase in the minimum wage insist that it would help the poor and less-skilled workers. However, the government intervention on this matter has an adverse effect in the market place. The increase in the minimum wage could affect the supply and demand curve leading to a less efficient in the allocation of labor. Thus, resulting to an increase in unemployment rate. (See Figure II – Supply and Demand of Labor When an Increase in Minimum Wage is Implemented on page 4) Each time the equilibrium real wage is not equal to the market-clearing real wage, the real wage becomes too high. In this case, some businesses would be forced not to hire additional manpower. For companies that are experiencing a bad business performance combined with a bad economic situation, some of these firms may choose to implement mass lay-offs or simply declare bankruptcy or closure. It simply proves that increasing the real wage too high would result to an involuntary unemployment. Determining