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It is a form of price floor in which the product is the labour (Arnold, 2008). As economist, to evaluate this minimum wage as a legal price we will need to use a labour demand and…
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EVALUATING MINIMUM WAGES AS A LEGAL PRICE Michael Escue BU224-01: Microrconomics Prof. Vallilliee August 7, Michael Escue August 7,2012
BU224 - Microeconomics
2) Introduction
Minimum wage is the least amount of money paid to an employee for providing labour to the employer. It is a form of price floor in which the product is the labour (Arnold, 2008). As economist, to evaluate this minimum wage as a legal price we will need to use a labour demand and supply curve. Labour supply and demand curve consists of demand and supply of labour plotted against the price of labour. In our evaluation, we will identify the effect of minimum wage both in the case when it is above the equilibrium wage price and when it is below the equilibrium wage price (Tacker, 2010). Equilibrium wage price in this case, is the price of labour in which the supply is equal to the demand. The thesis statement for this paper is that the minimum wage, which varies from time to time, has great impact to the labour market and it is the same throughout the nation.
3) The Purpose of the topic and its impact to different economic actors
The topic studied in this research paper is very important to the economists. It serves the purpose of exploring the minimum wage as a legal price in depth. The topic has a great impact to different economic actors. One of its impacts is that it enables policy makers to determine the gains and losses that should be expected from a policy to raise minimum wage (Welch & Welch, 2009). It also enables the human rights advocates to know the extent to which they can force the government to increase minimum wage. For the government, it could enable it to realize how it can control its economy using the minimum wage.
I. The minimum wage has a great impact on the labor market
The first major point in this research paper was that the minimum wage has a great impact to the labour market. As Mankiw (1998) indicates, minimum wage raises the income of the working people but increases unemployment. In terms of demand as supply curve for labor, we can say that if the minimum wage is above the equilibrium price for labor, employers will employ fewer laborers. As a result, there will be an increase in unemployment. However, if the minimum wage is below the equilibrium price for labor, it will not have any effect to the levels of unemployment.
II. The minimum wage as a legal price has been changing from time to time
Another major point in this research was that minimum wage as a legal price has been changing from time to time. Currently, a proposal was made to increase minimum wage and it has already been implemented by some states (Brux, 2007). This was an effort to keep the minimum wage in-line with the economic situation in the country. The economic situation in the country has been worsening with inflation increasing on annual basis. Therefore, the value of money declined and hence there was a need to increase the minimum wage. Since, the economy did not experience a change in the demand and supply of labor, the increase in minimum wage greatly affected the labor market.
III. The minimum wage as a legal price is the same throughout the nation
Our third major point is that the minimum wage as a legal price is the same throughout the nation. Although each state in the United States has its own minimum wage, this minimum wage is only effective when it is above the federal minimum wage (Neumark & Wascher, 2008). This is an indication that all the states implement the federal minimum wage, which is the same throughout the country. Since the demand and supply of labor is different across states, the similar minimum wage greatly affects the labor market in each of the states. The effect is either negative or positive depending on the equilibrium price of labor.
4) Conclusion
The minimum wage greatly affects the labor market since it might result to increase in unemployment. It has been changing with time and recently a proposal has been made to increase it. Several states have adapted the proposal and it is expected that any time soon all the states will effect it. Although, most of the states have their minimum wage, they have to implement the federal minimum wage that is the same throughout all the states. The effect of minimum wage on the labor market means that this minimum wage can greatly affect the economy. Though we cannot keep it constant due to changing economic situations, policies to increase it must be addressed with caution. They should also be made to vary across the states since the situation of the labor market is different in each state.
Arnold, R. A. (2008). Microeconomics. Mason, OH: South-Western Cengage Learning.
Brux, J. M. (2007). Economic Issues and Policy. Mason, OH: Thomson Higher Education.
Mankiw, G. N. (1998). Principles of Microeconomics. Orlando, FL: Harcourt Brace College Publishers.
Neumark, D., & Wascher, W. L. (2008). Minimum Wages. Cambridge, MA: Massachusetts Institute of Technology Press.
Tacker, I. B. (2010). Macroeconomics for Today. Mason, OH: South-Western Cengage Learning.
Welch, P. J., & Welch, G. F. (2009). Economics: Theory and Practice. Hoboken, NJ: John Wiley & Sons Publishers. Read More
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