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Minimum Wage Effects
For the past two decades, a debate has erupted among the economists, legislators, and academics concerning the impacts of raising the minimum wage. The primary concern is that an increase in the minimum wage will lead to higher rates of unemployment (Myers, 7). However, as the state government is reluctant in taking measures to increase the federal minimum wage, the state’s income inequality is on the rise and purchasing power of the people with minimum wage is declining. States are taking approaches to ensure the resiliency of the value of the minimum wage to factors such the consumer price index to prevent these socio-economic issues (Pedace and Rohn, 60). The surprising rate of unemployment about labour market model has caused economic and political actors to recommend the free market model. Comment by Owner: Not accurate. Comment by Owner: States can only raise their own minimum wages. Comment by Owner: Which state? Comment by Owner: What issues? Such as?
There are two competing solutions to the issue of minimum wage. One of the solutions is adapting the labour market model and free market model. Comment by Owner: Avoid single sentence paragraphs.
When assessing the impact of a minimum wage, experts utilie a labour labor market model in which the “hours willing to work” supply at a provided wage amount and demand is the amount of hours an organization uses employees at a provided wage. The calculation of assumption that goes into the derivation of these labour labor supply and demand curves calls into inquiry the concept of unemployment rate increase created from minimum wage policies. Having equal market power, working in unison with identical information, and making the correct business choices are some of the critical assumption related to a perfectly competitive market (Mallard, 20). However, business in the real world has imperfect information and unequal market power. Specifically, this leads different business stakeholders to fail to act together in response to diverse market signals so as to maximize their cost margins and profits. Comment by Owner: What does this have to do with minimum wages?
The second solution would be adopting the free market framework. The approach of “monopsony of the labour market” believes that business has market power and has more wage setters than wage takers (Hill and Myatt, 34). Mainly, this approach suggests that business can endure moderate increases in the minimum wage because they are not always fully beholden to market forces and are tight profit margins. Besides, employers and employees have a symbiotic bond when it comes to wages. The perfectly competitive market approach establishes that if a business reduces worker pay by one cent less than the equilibrium wage, all of the employees will quit because the employee, as rational actors, will only work for jobs that provide them with a wage amount equal or greater than the equilibrium amount (Hill and Myatt, 36). Nevertheless, there exist market frictions that can limit employees from making this kind of calculations. The conflicts entail the time and resources it takes for employees to get a new job or the increased commuting cost. Conflicts can also be personal preferences such as organizational benefits, job satisfaction, and co-employee attachments. Interestingly, the free market framework does not consider these frictions which skew the entire neoliberal analysis. Comment by Owner: Which is what in this case?
If a business operates on the free market model and is profitable, the worker will gain higher wages because the business can afford to reward its workers. Therefore, among the two competing solutions, I prefer the free market model. The increase in wage would positively impact the employees without the need for a minimum wage law. However, the economic setting available by these models allows for the hiring of more workers as the wages are more acceptable and predictable. Comment by Owner: But, often does not to increase profits.
The federal government has the sole responsibility of ensuring that issues effecting affecting the economy are handled to stabilize the economy, which means that the federal government should find the best model that will deal with any problem effecting affecting the economy. In this regard, I suppose that the federal government should implement the adoption of a free market model. To sum up, the government is responsible for developing a free market model that ensures real dollars are used to control for inflationary effects. Comment by Owner: Repetitive writing. Comment by Owner: For over a century now, it has not done this. Instead, the Fed uses the Keynesian approach to the economy.What does this have to do with minimum wages?
References
Hill, Rod and Tony Myatt. The Economist’s Anti-textbook: A Critical Thinkers Guide to Microeconomics. Nova Scotia, Canada: Fernwood Publishing, 2010.
Mallard, Graham. The Economics Companion. New York: Palgrave Macmillan, 2012.
Myers, John. “Lawmakers Forced to Choose: Raise California’s Minimum Wage, or Leave the Issue to Voters.” Los Angeles Times, 22 Mar. 2016, www.latimes.com/politics/la-pol-sac-minimum-wage-negotiations-california-20160322-story.html. Accessed 26 Mar. 2017.
Pedace, Roberto, and Stephanie Rohn. “The Impact of Minimum Wages on Unemployment Duration: Estimating the Effects using the Displaced Worker Survey. Journal of Industrial Relations. vol. 50 no. 1, 2011, pp. 57-75.
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