Impact of Minimum Wage and Rent Control on Labor Market and Housing Market

Running head: ECONOMICS
Economics
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ECONOMICS1
Table of Contents
Minimum wage and its impact...................................................................................................2
Rent control and its impact........................................................................................................3
References..................................................................................................................................4

ECONOMICS2
Minimum wage and its impact
Minimum wage refers to the policy of implementing a legal minimum wage in the
labor market. Objective of the policy is to secure a minimum income for the workers.
Whenever equilibrium wage in the labor market is low, government imposes a minimum
wage above the equilibrium (Kreps, 2019). The impact of such a policy is illustrated in the
figure below.
Figure 1: Impact of minimum wage on labor market
In the above figure free market wage in the labor market corresponds to W*.
Equilibrium wage in the market is determined from free market labor demand and labor
supply curve. Corresponding equilibrium employment is L*. Now suppose government
imposes a binding minimum wage at W1. At the higher minimum wage supply of labor
increases to L2 while demand for labors fall to L1. At the higher wage employers prefer to
hire less number of workers to save wage cost. The excess supply of labor leads to
unemployment in the economy. The unemployment is more prevalent among the low income
as they earn only equilibrium wage (Baumol & Blinder, 2015). Implementation of minimum