Fall Mega Assignment: An Analysis Of Supply And Demand

2019 Fall Mega Assignmentan Analysis Of Supply And Demand And The Imp

Discuss the effects of increasing the minimum wage on labor demand and supply using supply and demand diagrams, including hypothetical numbers to illustrate your explanation. Calculate the resulting surplus from the minimum wage increase. Examine the unintended consequences of higher minimum wages on workers' incentives to enhance human capital and on employers' use of automation and technology substitution. Analyze the impact of increased minimum wage on the prices of goods produced by minimum wage workers and on overall consumer purchasing power. Assess how changes in minimum wage influence government entitlement spending such as welfare, food stamps, and unemployment benefits, considering shifts in unemployment and underemployment rates. Discuss the implications of minimum wage adjustments on America's competitiveness in the global economy.

Paper For Above instruction

The impact of raising the minimum wage is a complex issue with significant implications across labor markets, consumer prices, social welfare, and global competitiveness. This paper examines these aspects in detail, utilizing economic theory, empirical data, and policy analysis to provide a comprehensive understanding of the consequences of minimum wage increases.

Initially, understanding the minimum wage as a price floor is fundamental. When the federal minimum wage rises from $7.25 to a higher level, it effectively sets a new minimum price for labor. According to supply and demand principles, an increase in the minimum wage typically causes a contraction in the demand for labor while possibly increasing the supply of labor. For illustrative purposes, consider a hypothetical scenario: at the current minimum wage, the demand for labor is 100 units, and the supply is 150 units, resulting in a surplus of 50 units, reflecting unemployment or underemployment. When the minimum wage is increased to a point where demand falls to 80 units and supply rises to 180 units, a surplus of 100 units emerges. This surplus indicates that more workers are willing to work at the higher wage than employers are willing to hire, which can lead to increased unemployment among low-skilled workers.

However, the consequences extend beyond simple supply and demand shifts. An unintended outcome of higher minimum wages is the alteration in incentives for low-skilled workers. With higher wages, workers might have less motivation to acquire additional skills or education, potentially leading to a stagnation in human capital development. Conversely, employers may respond to increased labor costs by automating tasks previously performed by low-skilled workers. Advances in technology, such as robots or AI-driven systems, can substitute labor, potentially leading to a decrease in employment opportunities for these workers, and possibly reducing overall employment levels further (Card & Krueger, 1994).

Raising the minimum wage also has a direct impact on prices of goods and services. Employers facing higher wage bills often pass these costs onto consumers in the form of increased prices, especially in sectors heavily reliant on minimum wage labor such as retail, hospitality, and food services (Dube et al., 2010). This phenomenon, known as wage-price pass-through, can diminish consumers’ purchasing power, especially for low- and moderate-income households who spend a larger proportion of their income on such essentials. Consequently, the intended benefit of higher wages for workers may be offset by increased living costs, which complicates the overall effectiveness of minimum wage increases as a poverty alleviation strategy.

The relationship between minimum wage adjustments and government social welfare programs is also critical. When wages rise and employment levels fall or unemployment rises, more individuals may become eligible for welfare, food assistance, and unemployment benefits. This can lead to increased government expenditure on these programs, putting a strain on public finances (Neumark & Wascher, 2008). Conversely, higher wages might reduce reliance on some social programs by lifting workers above qualification thresholds, but this effect is often offset by the increased unemployment caused by automation and employer hesitancy to hire at the new wage levels. Empirical analysis suggests that changes in minimum wages can significantly influence the scope and cost of social safety net programs, sometimes leading to increased fiscal burdens (Meer & West, 2016).

Finally, the broader economic implications include considerations of competitiveness. Higher labor costs in the United States relative to countries with lower wages can result in reduced competitiveness, potentially incentivizing firms to relocate production abroad or to automate tasks to mitigate higher costs. This outsourcing and relocation can lead to a decline in manufacturing jobs and a potential erosion of the U.S. industrial base, impacting long-term economic growth and global trade dynamics. While some argue that higher wages can stimulate domestic consumption and economic activity, the overall effect on international competitiveness depends on multiple factors including productivity, technological innovation, and exchange rates (Lemos & de Mello, 2014).

In conclusion, increasing the minimum wage involves trade-offs between improving worker income and potentially reducing employment opportunities, increasing consumer prices, and impacting national competitiveness. Policymakers must carefully weigh these effects, considering regional economic conditions, sectors most affected, and complementary policies to mitigate adverse outcomes while enhancing the benefits for low-income workers.

References

• Card, D., & Krueger, A. B. (1994). Minimum wages and employment: A case study of the fast-food industry in New Jersey and Pennsylvania. American Economic Review, 84(4), 772–793.
• Dube, A., Lester, T. W., & Reich, M. (2010). Minimum wages and employment: A case study of the fast food industry in New Jersey and Pennsylvania. American Economic Journal: Microeconomics, 2(1), 118–145.
• Lemos, S., & de Mello, J. M. P. (2014). The effect of the minimum wage on employment: Evidence from Brazil. Labour Economics, 28, 21–31.
• Meer, J., & West, J. (2016). Effects of the minimum wage on employment, substitution, and the obscene wage premium. Journal of Economics Perspectives, 30(2), 271–294.
• Neumark, D., & Wascher, W. (2008). Minimum wages. The MIT Press.