Name: Alegieuno Jemima Anosi

College: Business Management

Department: Industrial Relations & HRM
Matric no.:19AC025129
Course code: IRH 322
The effect of minimum wage on employment.
The concept:
What is minimum wage?
This is the least amount of remuneration in which an employer is to pay a wage earner for their
work performed.
What is employment?
This is an agreement between the employer and the employer, in which the employee is paid
for work done.
When the minimum wage is being increased, which then is above the equilibrium, the rate of
job search would increase. This increase would lead to an excess supply of labor; while there
would be a decrease in the demand for labor.

Price D unemployment S
6.00- labor
surplus
5.00

Labor
S shortage D

0 10 30 50 Qty
Diagrammatic illustration of the effect of wage on employment.
The minimum wage is 5.00 the quantity supplied was 30, and that demanded was 30.
When there was an increase in the wage, which was above the equilibrium. We could see that
the quantity supplied rose to 50, while the quantity demanded dropped to 10. This is the effect
of increased wages on the employment rate, there would be an excess supply of labor over the
demand which would cause UNEMPLOYMENT.
Reasons why most employers or firms won’t be demanding more labor is because most
employers won’t be able to pay the increased wage and thereby they lay off staff which would
make them unemployed. And this also relates to the law of demand which states that the
higher the price the lower the quantity demanded and vice versa. And also seen in the diagram
above that the wage increase caused an increase in supply, which then led to an excess supply
of labor over that of the demand. As this relates to the law of supply which states that the
higher the price, the higher the quantity supplied and vice versa. Employers demand less when
there’s a wage increase to reduce their overhead costs to maximize profit.
When the minimum wage reduces, employees would employ more individuals, because they
would want labor at a cheaper price. The individuals would still supply their labor because they
don’t want to be unemployed. When there are excess employees within the organization, there
would be repercussions if going by the nominal wage which is static, constant, and fixed. The
employees would be redundant which would affect the productivity and profitability level of
the organization. But going by the real wage, the employees would work and carry out their
tasks, because the pay is attached to their performance.