Question

1. What is the ‘textbook’ definition of “outsourcing”?   2. In theory, what are some of the wage and employment effects of outsourcing?   3. What is the ‘textbook’ definition of the “minimum wage”? 4, In reality, should the minimum wage in the Bay Area be raised to $20 per hour? Why or why not? What are some of the arguments in favor of this proposal, and against this proposal?

Answer 1

1) Outsourcing means giving a contract to an outside party for supply of certain goods and services. This is mostly done by the developed countries and the outsourcing is done to developing countries where the workers are available at low wages This is usually done to reduce the costs of the business.

2) Wage and employment effects of outsourcing are:

Wages are low since the outsourcing is obtained from outside parties which provide competitive wage rates and hence the labour cost is low for companies outsourcing.

But there is larger unemployment in countries outsourcing production. This is because now the demand for labour would reduce in the company or the country itself and hence there would be higher people unemployed, who were earlier employed

3) Minimum wages means the lowest value beyond which the workers would not want to supply their labour or beyond which the employers cannot hire the workers. It is a form of price regulation or price floor which is imposed by the government so that the workers have a basic minimum level of subsistence with the given wage rate.

4) If the minimum wage in Bay Area is increased to $20, then it would have several effects. The higher wage rate would mean that the employers are paying a higher price and hence the costs would be high, which would mean a higher price of the good they sell. Also this would mean that the workers are better off or have a higher standard of living.

But on the other hand, since the wages are high, the demand would be less,the employers would want to hire less and this would mean a higher unemployment.

So if the difference between the current and proposed minimum wage is less and the cost of employers doesn't increase significantly, the demand would not decrease and the workers would be better off without increasing the unemployment.

(You can comment for doubts)