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Minimum Wage
Minimum Wage
• Since 1997, the economy
downturn in Hong Kong leads to
the rapid increase of
unemployment rate. Especially
the low income families they
faced the cutting of income and
the reduction of staff.
• As a result, the minimum wage
policy is proposed to protect
labours from being exploited.
Minimum Wage
An effective
minimum wage
is set above the
equilibrium so it
will lead to an
excess supply of
Wage Rate
• Wage=MRP
• Wealth maximizing condition: MRP=MFC
• Wage rate is a kind of market price. Under
competitive constraints, employers must
offer “suitable” wages to workers, and these
“suitable” wages are measured by
contributions (productivity) of workers.
• Productivity of workers having higher level
of education and more experience is higher.
Wage rate
Wages increase as workers’ seniorities. The
more years the workers work, the higher wage
they receive.
However, workers’ wages do not reflect their
Give civil servants as an example: a newly
entered civil servant receives $10000/month,
while another who has worked for 5 years
receives $35000/month. However, their
responsibilities are more or less the same. It
shows that the workers’ wage do not in
proportion to their productivities. Their wage
are determined by their seniorities.
Therefore minimum wage rate can protect the
labour who lacks experience from receiving a
very low wage.
More About Wage Rate
• Substitution effect:
wage ,a person will
work longer because of
the increased
opportunity cost of
leisure time.
• Income effect: wage ,a
person can afford to
work less because he
can earn more income
than before without
working more.
Q1: After
carry out the
minimum wage policy,
the total output of the
country will??
• Ans: Decrease. It is
because the higher
than wage, the lower
than quantity
demanded for labor
force. Labour demand
curve is downward
sloping. The decrease
in labour force, of
course, leads to the
decrease of total output.
• Who will lose their job under this
• Ans: Low Productivity --The labour
whose marginal product revenue lower
than the minimum wage will suffer most.
It is because minimum wage is always
imposed above their productivities: the
teenagers who lacks work experience
Advantage of minimum wage
• This can increase the market
consumption because people have
higher income and faster the recovery
of economy. Also when the wage is
too low, people will prefer
unemployment other than having a job.
Therefore the minimum wage can
encourage more labour to enter the
labour market.
Disadvanges of minimum
• Under this policy, the employees are
forced to increase the wage of labour
so their production cost is higher. As
a result, some employees will use
more machines rather than employ
the labour.
• Choice of different contractual
arrangements depends on
• -how risk is shared
• -the transaction costs involved in
the arrangement
• Proxy payment ( e.g.. Time rate )
• Reason: it is hard to measure one’s
• Risk: bear by producer because no direct
linkage between output and wage
• Problem: shirking problem
• Cost: monitoring cost
Group Members
Chan Ping Ying 6A (1)
Leung Sze Wing 6A (7)
Man Chui Ying 6A (9)
Yu ka Yan 6A (14)
Yu Kam Fa 6A (15)