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Why does the NMW cause job losses?

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Why does the NMW cause job losses?

username474976

Thanks

Reply 1

yeoni

maskofsanity

Thanks

NMW will lead to higher cost for firms, they may have to lay off workers. Also those workers near the NMW, may ask for a pay rise to compensate for the differential, further adding to the firms cost.
Draw a diagram that will illustrate the excess supply :]

Reply 2

PJ991

Wikipedia has the best diagram for this. It's pretty much what yeoni said, just in a diagram. Underdemand and oversupply of labour.
http://en.wikipedia.org/wiki/File:Wage_labour.svg

Reply 3

Kameo

As said but there is also another possibility of it increasing employment. This would be the case if the NMW becomes the new marginal cost of labour, thereby causing a rise in employment.

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