Figure 12.12 Alternative Responses to Low Wages Government can respond to a low wage by imposing a minimum wage of Wm in Panel (a) This increases the quantity of labor supplied and reduces the quantity demanded It does, however, increase the income of those who keep their jobs Another way the government can boost wages is by raising the demand for labor in Panel (b) Both wages and employment rise Some economists oppose increases in the minimum wage on grounds that such increases boost unemployment Other economists argue that the demand for unskilled labor is relatively inelastic, so a higher minimum wage boosts the incomes of unskilled workers as a group That gain, they say, justifies the policy, even if it increases unemployment An alternative approach to imposing a legal minimum is to try to boost the demand for labor Such an approach is illustrated in Panel (b) An increase in demand to D2 pushes the wage to W2 and at the same time increases employment to L2 Public sector training programs that seek to increase human capital are examples of this policy Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 661