Discussion 1: Demand For Labor And Minimum Wage

Discussion 1 demand For Labor And Minimum Wage Wlos 1 2 Clos 1 2

Prior to beginning work on this discussion, read Jared Bernstein’s article, Amazon’s Raise: Unequivocally Good News. Based on the article’s information and Chapter 12 in your textbook, respond to the following: Why is the demand for labor called a derived demand? In the labor market, what are the firm’s demand curve for labor and the workers’ supply curve of labor? How is a firm’s wage normally determined in the labor market? How could Amazon decide to raise its minimum wage to $15 per hour, despite the federal minimum wage being fixed at $7.25 per hour?

What are positive and negative effects of Amazon raising its minimum wage to $15 per hour on its employees, total revenue, and other companies and their employees? Your initial post should be a minimum of 300 words.

Additionally, prior to beginning work on this discussion, read Tim Worstall’s article, One Benefit of Nancy MacLean’s Democracy in Chains - Public Choice and Rent Seeking. Based on the article’s information and Chapter 14 in your textbook, especially Sections 14.1 and 14.2, respond to the following: What is the public choice idea or theory? Explain what rent seeking is. How can you combine the ideas of public choice and rent seeking? Choose one real-world example of combining public choice and rent seeking to evaluate. Your initial post should be a minimum of 300 words.

Paper For Above instruction

The demand for labor is often described as a derived demand because it originates from the demand for the goods and services that labor produces. Essentially, firms do not demand labor for its own sake but demand it because labor contributes to the production of goods and services that consumers want. When the demand for these goods and services increases, firms consequently hire more labor, and vice versa. This relationship underscores the fact that the demand for labor depends on the demand for the final products that labor helps to produce. For example, an increase in consumer demand for electric vehicles increases automakers’ need for skilled labor, illustrating the derived nature of labor demand (Mankiw, 2021).

In the labor market, the firm’s demand curve for labor is downward sloping, reflecting that as wages decrease, firms are willing to hire more workers. Conversely, the supply curve of labor generally slopes upward, indicating that as wages increase, more workers are willing to offer their labor. The equilibrium wage is determined where these two curves intersect, representing the wage level at which the quantity of labor supplied equals the quantity demanded. Typically, wages are influenced by market forces, including the bargaining power of workers and firms, and broader economic factors such as minimum wage laws and labor market regulations. Usually, wages are set at the intersection point of demand and supply, but external interventions like minimum wage laws can create wage floors above equilibrium.

Amazon’s decision to increase its minimum wage to $15 per hour, despite the federal minimum of $7.25, can be attributed to several strategic considerations. Amazon may aim to attract and retain more skilled workers, decrease employee turnover, and improve productivity and morale. Such a move could also be driven by competitive pressures and the desire to enhance company reputation. Increasing wages can also reduce the firm’s reliance on costly turnover and training, ultimately lowering operational expenses in the long run (Bernstein, 2023).

The positive effects of Amazon raising its minimum wage include improved earnings for employees, greater job satisfaction, decreased turnover, and potential increases in productivity. Higher wages may also lead to increased consumer spending by employees, stimulating local economies. However, negative effects might include higher labor costs for Amazon, potentially leading to increased prices for consumers or reduced profit margins. Some competitors might not raise wages and could thus gain a competitive advantage by offering lower prices, which could affect the overall labor market by encouraging firms to cut back on employment or benefits to maintain profitability. Additionally, small businesses may struggle to compete with Amazon’s higher wages, which could lead to reduced employment opportunities elsewhere (Dube, 2018).

Turning to public choice theory, it examines how individual actors in government and politics—such as voters, politicians, and bureaucrats—pursue their own interests, often leading to outcomes that may not align with the public good. This perspective suggests that government decisions are influenced by self-interest rather than social welfare, and politicians may seek to serve special interests to gain electoral support (Brennan & Buchanan, 1980). Rent seeking involves individuals or groups attempting to increase their share of existing wealth without creating new wealth, typically through lobbying, regulatory capture, or other forms of influence to gain favorable treatment or regulatory advantages (Tullock, 1967).

Combining public choice and rent seeking involves understanding how special interest groups influence government policies to benefit themselves at the expense of the public interest. An example of this is corporate lobbying for favorable regulations or subsidies. For instance, large agricultural corporations lobbying for subsidies can be seen as rent seeking, as they seek to secure financial advantages without necessarily increasing productivity or market efficiency. These groups often mobilize political support to enact policies that favor narrow interests, which can distort resource allocation and reduce social welfare (Krueger, 1974). This interaction reveals the tendency of political processes to be influenced by rent seeking behavior, perpetuating inefficiencies and favoring well-organized interest groups.

References

• Brennan, G., & Buchanan, J. M. (1980). The Power to Tax: Analytical Foundations of a Fiscal Constitution. Cambridge University Press.
• Bernstein, J. (2023). Amazon’s Raise: Unequivocally Good News. New York Times.
• Dube, A. (2018). Minimum Wages and Firm Turnover. Labour Economics, 52, 88-103.
• Kreuger, A. O. (1974). The Political Economy of the Rent-Seeking Society. American Economic Review, 64(3), 291-303.
• Mankiw, N. G. (2021). Principles of Economics (9th ed.). Cengage Learning.
• Tullock, G. (1967). The Politics of Bureaucracy. Public Choice, 3(1), 35-47.