Question

In 2012, many unskilled workers in the United States earned the federal minimum wage of $7.25 per hour. By contrast, average earnings in 2012 were about $28.00 per hour, and certain highly skilled professionals, such as doctors and lawyers, earned $140.00 or more per hour.

Instructions: In parts a, c, and d, round your answers to 2 decimal places. In part b, enter your answers as whole numbers

. a. If we assume that wage differences are caused solely by differences in productivity, how many times more productive was the average worker than a worker being paid the federal minimum wage? .

How many times more productive was a $140-per-hour lawyer compared to a worker earning minimum wage? .

b. Assume that there are 20 minimum-wage workers in the economy for each $140-per-hour lawyer. Also assume that both lawyers and minimum-wage workers work the same number of hours per week. If everyone works 40 hours per week, how much does a $140-per-hour lawyer earn a week?

$ per week.

How much does a minimum-wage worker earn a week?

$ per week.

c. Suppose that the government pairs each $140-per-hour lawyer with 20 nearby minimum-wage workers. If the government taxes 25 percent of each lawyer’s income each week and distributes it equally among the 20 minimum-wage workers with whom each lawyer is paired, how much will each of those minimum-wage workers receive each week?

$ each week.

If we divide by the number of hours worked each week, how much does each minimum-wage worker’s weekly transfer amount to on an hourly basis?

$ per hour.

d. What if instead the government taxed each lawyer 100 percent before dividing the money equally among the 20 minimum-wage workers with whom each lawyer is paired.

How much per week will each minimum-wage worker receive?

$ per week.

How much is that on an hourly basis?

$ per hour.

Answer 1

Solution:-

(A). If we assume that wage differences are caused solely by differences in productivity, how many times more productive was the average worker than a worker being paid the Federal minimum wage?
Answer: 28/7.25 = 3.86 times

How many times was more productive a $140-per-hour lawyer compared to a worker earning minimum wage?
Answer: 140/7.25 = 19.31 times

(B). If everyone works 40 hours per week, how much does a $140-per-hour lawyer earn a week?
Answer: 40*140 = $ 5600 per week

How much does a minimum-wage worker earn a week?
Answer: 40*7.25 = $ 290 per week

(C). How much will each of those minimum-wage workers receive each week?
Answer: (0.25*5600)/20 = $70 each week

Thus, each worker minimum wage received from the government is: $70 per week

The weekly transfer of the hours worked per week is $70/40 = $ 1.75 per hour

(D).The government revenue will equal to $5600 assuming the lawyer continues to work. Therefore, a weekly transfer is $5600/20 = $280. And the hourly transfer is: $175/40 = $ 4.375