Question

In 2015, many unskilled workers in the United States earned the federal minimum wage of $7.25 per hour. By contrast, average earnings in 2015 were about $27.00 per hour, and certain highly skilled professionals, such as doctors and lawyers, earned $135.00 or more per hour.

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 $135-per-hour lawyer compared to a worker earning minimum wage?

b. Assume that there are 20 minimum-wage workers in the economy for each $135-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 $135-per-hour lawyer earn a week?

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

c. Suppose that the government pairs each $135-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 more will each of those minimum-wage workers receive 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?

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 more will each of those minimum-wage workers receive each week?

How much is that on an hourly basis?

Answer 1

1) unskilled workers in the United States earned the federal minimum wage of $7.25 per hour.
2) average earnings in 2015 were about $27.00 per hour
3) highly skilled professionals, such as doctors and lawyers, earned $135.00 or more per hour.

(a) Assuming 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?
= 27/7.25
= 3.72 times.

How many times more productive was a $135-per-hour lawyer compared to a worker earning minimum wage?
= 135/7.25
= 18.62 times.

(b) If everyone works 40 hours per week, how much does a $135-per-hour lawyer earn a week?
= 40*135
= $5400 per week.

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

(c) How much more will each of those minimum-wage workers receive each week?
= (25%*5400) /20
= $67.5 per 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?
= $67.5/40
= $1.69 per hour.

(d) How much more will each of those minimum-wage workers receive each week?
= $5400/20
= $270.

How much is that on an hourly basis?
= 169/40
= $4.225