Economics Unemployment??? (1 Viewer)

[mattc2015]

Hi guys,
I'm doing year 11 economics and I'm wondering what type of unemployment is it when rise in minimum wages causes a contraction in demand for labour? Is it cyclical?? Is there anything you guys can tell me about labour markets relating to increase in minimum wages?? Thanks so much in advance!!!

 

[gc653]

I'm pretty sure it's cyclical-->Refers to people unemployed due to a downturn in the business cycle. , i.e demand for higher wages (from rise in minimum wages) which may result in employers having to cut jobs (therefore a contraction in demand for labour).

Also the increase in minimum wages in labour markets may force employers to raise their cost of products/services so that they are not losing money from paying their employees higher wages. Like a domino effect I guess. Also you still might want to double check if this stuff is correct I'm just answering from the top of my head

Hope this helps!

 

[mreditor16]

no its not cyclical unemployment - cyclical unemployment only occurs when a downturn in economic growth leads to a decrease in demand for labour, and thus increased unemployment

here, in the scenario you describe, the cause of the decreased demand for labour is the increase in the minimum wage, which decreases the attractiveness of labour as a resource in the production process and hence reduces demand for labour, leading to increased unemployment...

and, as a result, out of these:

– cyclical
– structural
– frictional
– seasonal
– underemployment
– hidden
– long term

the situation you have described does not come under any of them.

as for the second question, here's some good information that I found from my teacher's notes pertaining to the minimum wage and its relationship with unemployment:

"A decision by Fair Work Australia to increase award wages substantially in its Minimum Wage Decision (to improve the living standards of lower paid workers) might make it too expensive for some employers to keep all of their workers employed. Some employer groups claimed that the decision of Fair Work Australia’s Minimum Wage Panel to award a real wage increase to workers on award wages from July 2011, would result in higher unemployment because it would price some workers out of a job."

Hope this helps!