Minimum Wage Increase
On January 10, 2007 the House overwhelmingly approved the first federal minimum wage increase in close to 10 years. The new wage will proceed from $5.15 to $7.25 / hr over the next two years.
The increase of minimum wage has posed a considerable amount of opposition from many economists. With a standard labor/leisure diagram, economists can show that raising the minimum wage could cause employees to want to work less due to the income effect.
Whether this will actually happen is unknown. In my opinion, I believe the wage increase will not effect the amount of hours worked. If anything, the wage increase will act as a substitution effect causing the labor force to work more hours.
3 comments:
You also have to take into consideration Income Maintenance Programs. This type of Non-labor income may also have the opposite affect, causing many workers to work less hours. If they value leisure time more than income, they would now have the option to work less hours and still be compensated the same.
It all depends on which effect is more stronger; the income effect or the substitution effect. Also, it will depend on non-labor income as well to whether someone will stay or drop out of the work force. If the price of leisure stays the same then more leisure will be consumed, but if the price of leisure changes the person will work more.
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