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Minimum Wage Rise Risks Job Cuts and Inflation

EconEye Admin

The Isle of Man plans to raise the hourly minimum wage from £12.25 to £13.46 in April. A Chamber of Commerce survey found that 21% of firms may cut staff and 8% may freeze hiring. Prices are expected to rise too.—bbc.com,

The currency of the Isle of Man is the Manx pound, which shares the £ symbol with the British pound.

Answer the following questions to check your understanding of the story.

What is a minimum wage?

A minimum wage is _____________.

Wrong! - Is the minimum wage a price ceiling or a price floor in the labor market? Does it always guarantee a basic standard of living or attract the most productive workers?

Well Done! - A The minimum wage is the lowest wage at which a firm may legally hire labor

How does a rise in the minimum wage influence the labor market?

A rise in the minimum wage ______________.

Wrong! - What happens to the quantity of labor supplied and the quantity of labor demanded when firms that pay a wage rate below the new minimum wage are required to pay a higher wage? Does employment increase? Is the outcome full employment?

Correct! - The wage rate will rise in firms that pay a wage rate below the new minimum wage. The quantity of labor supplied increases, the quantity of labor demanded decreases, and unemployment arises.

Who wins and who loses from the increase in the minimum wage?

_____________ win and ____________ lose.

Wrong! - Do skilled workers who earn more than the minimum wage win? Won’t some unskilled workers receive a pay raise? Do producers who are required to pay the new minimum wage win? Why would all residents lose? Why would tourists win?

That's Right! - Workers who receive an increase in their wage rate win. Workers who lose their jobs and firms that must pay the higher wage rate lose.

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