Labor economics Essay Example | Topics and Well Written Essays - 500 words

Labor economics - Essay Example Employers would want to reduce costs and maximize profits. Therefore, employers will increase the minimum wage and decrease the number of employees to maintain their profitability. Various factors determine the size of the effect of an increase in the minimum wage on employment in perfect competition. First is nonmonetary compensation/ incentives, where employers reduce fringe benefits and increase the minimum wage without incurring additional costs. Second is the increased cost of a product. In the model economy, a corporation that increases its minimum wage reacts slowly to a corresponding rise in the price of its product than its competition in the industry (Card & Kruger, 792). The buyer has the ability to purchase a good at a lower price in a competitive market because he/ she can affect its price. Collusive behavior among buyers that influences the elasticity of the supply curve gives buyers monopsony power. The minimum wage increase might have a positive effect on employment if firms have significant monopsony power (Mangunsong, n.p.). This paper relies on studies such as the analysis of 410 fast food restaurants in Pennsylvania and New Jersey, which increased the minimum wage to $ 5.05 from $ 4.25. The study shows reduced employment in each state for companies that were paying the minimum wage of $4.25. The effect was insignificant for those that had their minimum wage at $5.05 (Card & Kruger, 792). However, it is hard to standardized results, since employers face supply limitations in both monopsony and equilibrium models. The range of estimates produced by studies may be invalid due partly to differences in working hours for part- time and full-time employees. Individual skills and in-house job training also affect the results of increasing minimum wages since it affects employee efficiency, which in turn