I'm (very) new to economics, taking it as an introductory subject at the moment. I had a quick question regarding labour markets and minimum wages imposed as a form of government intervention.

Is it generally true that for most countries, the free market equilibrium outcome would result in a price below the price floor (hence there is a minimum wage?)

Sorry if this is a stupid question, but I just wanted to make sure. Thanks!

  • 1
    $\begingroup$ Well almost by definition the minimum wage is a wage that the government forces the market to use so it would be pointless for them to set the wage if the market equilibrium was already above that. So when it first gets instituted, the minimum wage will bind, but other forces may lead to higher wages over time eventually leading to it not binding. $\endgroup$ – VCG Aug 24 '16 at 12:19

As VCG stated, no government would impose a minimum wage below what is the countervailing equilibrium wage. To do so would be pointless.

Do remember that undergraduate discussions on minimum wages using the comparative statics (lines on graphs basically) model are erroneous because labour markets do not clear.

  • $\begingroup$ In what sense do labor markets not clear? $\endgroup$ – BKay Aug 30 '16 at 13:12
  • $\begingroup$ Saying that was sloppy of me. I should have said in the short term labour markets do not clear because of nominal rigidities such as Bert not being able to move if his widget factory moves. or Bert being unable to renegotiate contracts instantaneously. $\endgroup$ – k BORT Aug 31 '16 at 23:25

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