Table of Contents
- 1 How does unemployment affect reservation wage?
- 2 What are the effects of an effective binding minimum wage on the number of unemployed?
- 3 What affects the reservation wage?
- 4 How does increasing minimum wage affect family income?
- 5 Why is the labor force participation rate too low?
- 6 How does the minimum wage affect the CPI?
How does unemployment affect reservation wage?
Self-reported reservation wages decline at a modest rate over the unemployment spell, with point estimates ranging from 0.05 to 0.14 percent per week of unemployment. After a year of unemployment, the reservation wage is only 2.5 to 7 percent lower than at the start of the unemployment spell.
What are the effects of an effective binding minimum wage on the number of unemployed?
Some unemployed workers would gladly work for a lower wage but cannot find a job, and some employers would be happy to hire workers at a lower wage but the law forbids it. Thus, in a competitive labor market, a binding minimum wage reduces employment and creates involuntary unemployment.
How does a low unemployment rate affect workers?
A very low a rate of unemployment, however, can have negative consequences, such as inflation and reduced productivity. When the labor market reaches a point where each additional job added does not create enough productivity to cover its cost, then an output gap, or slack, happens.
What affects the reservation wage?
An individual’s reservation wage may change over time depending on a number of micro and macro-economic factors, like changes in the individual’s overall wealth, changes in marital status or living arrangements, length of unemployment, and health and disability issues.
How does increasing minimum wage affect family income?
However, income would fall for some families because other workers would not be employed and because business owners would have to absorb at least some of the higher costs of labor. For those reasons, a minimum-wage increase would cause a net reduction in average family income. How did CBO estimate effects on family income?
What are the arguments for raising the minimum wage?
Proponents of raising the minimum wage cite the decades-long slide in the inflation-adjusted value of the federal minimum wage, as well as declines in inflation-adjusted wages for lower-skilled workers.
Why is the labor force participation rate too low?
The official government statistic on labor force participation is too low because people working in the underground labor market should be counted as being in the labor market and employed. 6) How does the labor force participation rate of women compare to that of men in the United States?
How does the minimum wage affect the CPI?
Historically, median hourly wage rates have grown faster than the CPI, and CBO expects that pattern to continue over the next 10 years. As a consequence, indexing the minimum wage to median hourly wage rates leads to slightly larger effects on employment, wages, and family income.