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Homework answers / question archive / On April 1, 2009, in the middle of a recession, the government of the province of Ontario, Canada increased the provincial minimum wage from $8
On April 1, 2009, in the middle of a recession, the government of the province of Ontario, Canada increased the provincial minimum wage from $8.75 to $9.50. What will the likely effect of this policy be?
a. Both the leftward shift in the labor demand curve and the higher minimum wage will lead to an increase in the unemployment rate.
b. Low income workers will be better able to survive the recession at the new, higher wage rate.
c. More people will be hired at the higher wage rate offsetting the effects of the recession.
d. The higher wage will increase the supply of labor offsetting the effects of the recession.
According to the scenario given above, at the time of recession, there is a decrease in the rate of wages as the firms focus on layoffs for the workers on low wages and, on the other hand, moving the high paid workers to low wages. During the period of recession, there will be a decrease in the aggregate demand, and in order to cover the aggregate demand, the supply will reduce, which will also reduce the demand for the labors. Now, if the government increases the rate of wages at the time of recession, and with the high minimum rate of wages and low labor demand, the firm will not focus on employing new workers, which may lead towards a higher rate of unemployment.
The Correct option is A, which states that " Both the leftward shift in the demand curve of labor and the high minimum wages will lead towards an increase in the rate of employment."
(Correct answer: a)
