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Situational effect on wages

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According to economist Albert Rees, there is evidence that agreements sometimes exist "among employers not to raise wages individually or not to hire away each other's employees...Except in the unusual case of professional sports, however, these agreements must be very difficult to enforce.

Analyze the effects on wages and employment of such agreements. Also, indicate some of the reasons why they may be difficult to enforce.

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If employers were able to form a group which agreed to hold wages down, the result would likely be a shortage of workers. The only cases where this might not be true is in the developing world where labor is abundant. If a minimum wage were instituted in this environment, it would serve to bring wages up without causing employment.

However, it is very unlikely that such a situation would occur in the case of minimum wage workers. The market for these workers is very diverse and lacks coordination. It includes private households as well as businesses. That all these entities would agree to lower wages is remote. In fact the market for minimum wage workers is almost one of perfect competition. This is why ...

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