Question

In: Economics

2.Assume that the federal government mandates a minimum wage of $20 per hour for all fast...

2.Assume that the federal government mandates a minimum wage of $20 per hour for all fast food workers in the United States. Thinking of the Hicks-Marshall Laws of Derived Demand, describe the conditions under which job loss among workers in the fast food industry would be the smallest. Your answer should be framed in terms of scale effects and substitution effects.

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Expert Solution

Suppose that the government raises the minimum wage by 20%. Thinking of the 4 hicks marshall laws of derived demand as they apply to a particular industry, analyze the conditions under which job loss among teenage workers in that industry would be smallest.

The overall conditions making for a smaller employment loss among teenagers are a) a small sub effect and b) a small scale effect. The sub effect can be relatively small if it is difficult to sub teenage workers with adults and capital or the sub rises in price when the demand for them grows.

The Federal government, in an effort to stimulate job growth, passes a law that gives a tax credit to employers who invest in new machinery and other capital goods. Applying the concepts underlying cross elasticities, discuss the condition under which employment gains in a particular industry will be largest.

This credit will lower down the cost of capital, so the question is how does that help increase labor? Employment would be better off if there was a large scale effect and a smaller sub effect. The sub effect would be nonexistent if labor and capital were compliments in production.


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