Question

Since 2009, the national minimum wage has been $7.25 per hour for most occupations in the private sector. Many of those who support an increase in the minimum wage believe this is one way the government could possibly reduce poverty, while its opponents believe that it creates unemployment and hurts low-skilled workers. The following items address the idea of raising the minimum wage from the current federal minimum of $7.25 per hour.

4) What might be an unintended impact on government spending on entitlements such as welfare, food stamps, and unemployment compensation in light of the fact that changes in the minimum wage can create changes in unemployment and underemployment?

5) Do advocates of a minimum wage law believe that workers should be paid based on their output (i.e., performance) or on their level of need? What do opponents of the minimum wage law believe workers’ wages should be based on? Which one is sustainable and why?

For the sake of comparison, how should students be graded in class, based on their performance or level of need?

6) Advocates of a minimum wage often believe that employers would “exploit” or “take advantage” of their workers if there were no minimum wage. How would you know if employers are “taking advantage” of their workers if there were no minimum wage? What could the employee do if they believed they were being exploited?

Answer 1

Question 4 answered fully.

4.Minimum wage law in economics is a clear example of price flooring.

Price flooring is minimum legal price that has to be paid by the sellers. When govt. believes that market prices are too low then it applies flooring. For. ex. wages in a certain city may be very low then govt. may fix minimum wages that have to be paid. Other example can be minimum price support for farmers where. govt. guarantees. minimum price per unit weight.

Economic impact can be shown as below:When market had a equilibrium wage at We, govt. thought it was too low and hence wage flooring at wage Wf is put. Now at wage Wf, demand is D and supply is only S, hence there is excess of labor(S-D). In. this case gap between supply and demand of labors will widen as already existed due to minimum wage law. However a kind of equilibrium was settled at that wage.

Initial equilibrium is disturbed. Employers will be worse off in terms of wages inspire of having excess labor. Workers are better off as they get higher wages. Society as a whole is also worse off due to misallocation of resources. However it may be compensated with the improved standard of living and reduced income inequality.

It is clear that unemployment benefits,food stamps expenditure will go up. People will have to accept leser paid jobs and hence undeemployment will go up.