Minimum wages and competition rules
| English | 中文 | Pinyin |
|---|---|---|
| minimum wage/ˈmɪnɪməm weɪdʒ/ | 最低工资 | zuì dī gōng zī |
| non-binding/nɒn ˈbaɪndɪŋ/ | 非约束性 | fēi yuē shù xìng |
A decision you can investigate
- A town introduces a wage floor above the previous market wage. Some workers who keep their jobs gain income, while employers reconsider hours, staffing and prices.
- The effect depends on where the floor sits and how the market responds.
Build the explanation
- A minimum wage 最低工资 is a legal wage floor. In a competitive model, a floor above equilibrium raises quantity of labour supplied and reduces quantity demanded, creating excess supply of labour. A floor below equilibrium is non-binding 非约束性 in that simple model.
- Reasons include protecting low-paid workers and raising living standards. Possible costs include higher business expenses, reduced jobs/hours or higher prices. Competition rules separately address market power, consumer interests and mergers that could weaken competition.
Work through the evidence
- At the original equilibrium wage 20 yuan, employers demand and workers supply 100 hours. At a minimum wage of 24, the supplied schedule shows demand 80 hours and supply 120.
- Excess labour supply = Qs − Qd = 120 − 80 = 40 hours. Employed hours in this model are 80, not the 120 offered. A further increase can widen the gap, depending on the slopes and response.
What is excess labour supply at the 24-yuan floor?
The schedule is in hours: 120 − 80 = 40.
In the simple model, a wage floor below equilibrium is
The market equilibrium already pays more than that floor.
The minimum-wage schedule establishes that exactly 40 named people lost jobs.
It records excess supplied hours, not individual employment histories.
Test the limits
- The diagram is a model, not proof that every real minimum-wage rise cuts employment by the same amount. Enforcement, market power, productivity, staff turnover and demand responsiveness can change outcomes.
- Do not label all 40 hours as identified newly unemployed people: the schedule is measured in hours and includes additional labour offered. Evaluate workers who retain employment as well as those unable to find work.
What is a relevant reason to review a merger?
Review focuses on market effects, not size alone.
Apply and explain your answer
- How many hours are employed in the stated competitive wage-floor model?
- 80 hours, the quantity employers demand at the legal floor.
Match the terms to their meanings.
Each term describes a specific mechanism in this lesson.
Use the terms precisely
- minimum wage: A legal lower limit on the wage paid for covered work.
- non-binding: A limit that does not constrain the market’s chosen outcome.
At the original equilibrium wage 20 yuan, employers demand and workers supply 100 hours. At a minimum wage of 24, the supplied schedule shows demand 80 hours and supply 120. Excess labour supply = Qs − Qd = 120 − 80 = 40 hours. Employed hours in this model are 80, not the 120 offered. A further increase can widen the gap, depending on the slopes and response.
The diagram is a model, not proof that every real minimum-wage rise cuts employment by the same amount. Enforcement, market power, productivity, staff turnover and demand responsiveness can change outcomes. Do not label all 40 hours as identified newly unemployed people: the schedule is measured in hours and includes additional labour offered. Evaluate workers who retain employment as well as those unable to find work.
A minimum wage is a legal wage floor. In a competitive model, a floor above equilibrium raises quantity of labour supplied and reduces quantity demanded, creating excess supply of labour. A floor below equilibrium is non-binding in that simple model.