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Edited on Wed Feb-09-05 06:27 PM by idlisambar
What if the labor supply curve bends backward over a certain wage range. Under this scenario, as the wage rate decreases, the number of willing workers increases along with the number job slots. If the number of willing workers increases at a faster rate than the number of job slots then unemployment increases. If the number of willing workers increases at a slower rate than the number of job slots, technically what develops is an increasing labor shortage -- though unlike the normal notion of a shortage the firm has no incentive to reverse it and so "real" unemployment is unaffected.
Why would the labor supply curve bend backward? The short answer is that the lower the wage the more hours a worker will be have to work to meet his needs, and so the more work-hours are available to employers. In practice, more hours could mean longer hours, a second or third job, or it may mean that the spouse goes to work.
The textbooks always have the labor supply curve pointing up and to the right, but there is no theoretical basis for this. The implication of the curve shape is that an employee will not choose to work if the wage rate is too low, but this is not realistic except in the case of those who don't need to work. This implication hardly applies at the lower end of the labor market.
Ultimately it is an empirical question how the minimum wage affects unemployment. The standard Marshallian neoclassical model, whether one posits a forward, vertical, or backward bending labor supply curve fails to capture what really goes on in labor markets.
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