labour services to Thus, the clear effect of the binding
minimum wage, as seen in the figure, is to generate
unemployment—workers that want a job in this market but are
unable to get one—equal to the amount
Whom does this policy benefit? And whom does it harm? The
owners of firms are clearly made worse off since they are now
required to pay a higher wage than before the minimum wage
was imposed. They respond to this increase in costs by
reducing their use of labour. Some (but not all) workers are
made better off. The workers who are lucky enough to keep
their jobs— workers in the figure—get a higher wage than
before. The shaded area shows the redistribution of income
away from firms and toward these fortunate workers. But some
workers are harmed by the policy—the ones who lose their jobs
as a result of the wage increase, shown in the figure as the
quantity
These are the predicted effects of minimum wages in a
competitive labour market—one in which there are many firms
and many workers, none of whom have the power to influence
the market wage. In Chapter 14 we will examine non-
competitive labour markets, and we will then see that minimum
wages may have a different effect on the market. This different
behaviour of competitive and non-competitive markets in the
presence of minimum wages probably accounts for the
disagreements among economists and policymakers regarding
the general effects of minimum wage legislation. Until we
E 2.E 1 E 2.E 1E 1 E 0.