Thursday, January 1, 2009

Federal Minimum Wage…

This post is referring to what Obama plans on doing with federal minimum wage.

Particularly pay attention to what Obama says, which is that he plans on raising minimum wage to $9.50 an hour by 2011.  Currently, federal minimum wage is at $6.55.  

Here is a graph I drew up.  It shows the quantity of labor supplied and demanded, at a given price.  It is based on the basic laws of supply and demand.  First from the demand side.  Basically, as the price of something decreases, the quantity demanded increases.  As the price of something increases, the quantity demanded decreases.  And second, from the supply side.  As the price increases, the quantity supplied will increase.  As the price decreases, the quantity supplied decreases.  See the graph here:

my graph

Now, pay specific attention to the yellow/green triangles.  They represent what we call unemployment.  If the quantity of labor supplied met the quantity of labor demanded (or vice versa), this would mean there are just enough workers and just enough jobs available, producing equilibrium.  Currently, there is unemployment.  As the graph shows, raising minimum wage will also raise unemployment.