Increasing a wage floor
| English | 中文 | Pinyin |
|---|---|---|
| wage bill/weɪdʒ bɪl/ | 工资总额 | gōng zī zǒng é |
| labour mobility/ˈleɪbə məʊˈbɪlɪti/ | 劳动力流动性 | láo dòng lì liú dòng xìng |
A decision you can investigate
- A wage floor rises again after its first introduction. More workers offer labour at the higher wage, but employers in the supplied schedule want fewer hours.
- The size of the change depends on the response of both sides.
Build the explanation
- In the competitive model, a binding floor constrains wages above equilibrium. Raising it moves along existing labour-demand and supply schedules; it does not itself shift those curves.
- Retained workers can earn more per hour, while jobs or hours may change. Responsiveness, productivity, prices, compliance and staff retention matter when evaluating the actual result.
Work through the evidence
- At equilibrium W = 20, Qd = Qs = 100 hours. At W1 = 24, Qd = 80 and Qs = 120: excess supply = 40 hours. At W2 = 28, Qd = 60 and Qs = 140: excess supply = 80 hours.
- In this supplied model, employed hours fall from 80 to 60 and hourly pay rises. The wage bill 工资总额 changes from 24 × 80 = 1920 to 28 × 60 = 1680 yuan; a higher hourly rate does not guarantee a higher total wage bill.
What happens to employed hours in the supplied increase?
Employment is constrained by demand at the binding floor in this model.
What is the later wage bill?
Multiply the wage paid by hours employed: 28 × 60 = 1680.
The wage-floor increase shifts the existing labour-demand curve automatically.
It gives movement along the existing curve unless another demand determinant changes.
Test the limits
- The schedule is illustrative, not a forecast for every labour market. If demand is less responsive, employers may reduce hours less; improved retention or productivity can alter their costs.
- Evaluate enforcement and workers outside coverage. Hours offered, hours employed and the number of people unemployed are distinct measures.
Which condition could reduce the predicted fall in hours?
A smaller quantity-demand response changes the modelled employment effect.
Apply and explain your answer
- What is excess labour supply at the 28-yuan floor?
- 80 hours: 140 offered minus 60 demanded.
Match the terms to their meanings.
Each term describes a specific mechanism in this lesson.
Use the terms precisely
- wage bill: Total wages paid, such as hourly wage multiplied by hours employed.
- labour mobility 劳动力流动性: The ability to move between locations or occupations for work.
At equilibrium W = 20, Qd = Qs = 100 hours. At W1 = 24, Qd = 80 and Qs = 120: excess supply = 40 hours. At W2 = 28, Qd = 60 and Qs = 140: excess supply = 80 hours. In this supplied model, employed hours fall from 80 to 60 and hourly pay rises. The wage bill changes from 24 × 80 = 1920 to 28 × 60 = 1680 yuan; a higher hourly rate does not guarantee a higher total wage bill.
The schedule is illustrative, not a forecast for every labour market. If demand is less responsive, employers may reduce hours less; improved retention or productivity can alter their costs. Evaluate enforcement and workers outside coverage. Hours offered, hours employed and the number of people unemployed are distinct measures.
In the competitive model, a binding floor constrains wages above equilibrium. Raising it moves along existing labour-demand and supply schedules; it does not itself shift those curves.