What Is The Effect Of A Price Floor On The Economy

Raising the minimum wage sounds like a beneficial idea, but there are also a few surprising reasons why it might not be such a good plan after all. A common assumption among Americans is that raising the minimum wage equals an increased income, but, according to Joseph J. Sabia and Richard V. Burhkauser that may not be the case. They discovered that, “examining only employment effects, however, may mask full labor demand effects. Firms may respond to minimum wage hikes by (i) reducing both employment and average hours worked by employed workers or (ii) increasing hours of retained workers to compensate for reduced employment” (Couch and Wittenburg 2001; Neumark and Wascher 2007) (595). What, exactly, would be the point in

An increase in the minimum wage would push companies to take this route as it becomes more and more profitable to them. The end result of all of this would be a suddenly increased level of unemployment bound to become subsequent with an increase in government-funded welfare expenses, weakening the economy even more.

In today’s economics minimum wage is used as a price control or price floor that the government enforces. A price floor is a minimum price for a product or service above the market’s equilibrium price. Selling any product or service sold below the price floor is considered illegal. Since the price of a commodity or service is increased the demand will go down lower than the quantity supplied creating a surplus. This theory also creates a surplus in employment. When minimum wage is increased or a price floor is set there will be a surplus of employees and the demand for workers will decrease. Well in order to accurately determine whether the minimum wage employees are receiving is enough to maintain a minimal lifestyle, we must first understand how the minimum wage is calculated. According to the United States Department of Labor, “federal minimum wage for covered nonexempt employees is $7.25 per hour effective July 24, 2009. The federal minimum wage provisions are contained in the Fair Labor Standards Act (FLSA).” The Fair Labor Standards Act is a set of standards pertaining to youth employment, overtime pay, and other laws that affect employees within private and public

Figure 7.6 shows how the minimum wage creates a price floor. The difference between the wage rate and the amount of workers needed is unemployment. Figure 7.7 shows the potential loss of labor demanded by businesses. This could become a positive statement to say that raising the minimum wage will increase unemployment. "Recent research reveals that, despite skeptics’ claims, raising the minimum wage does not cause job loss." (Cooper and Hall). An

Having a higher minimum wage would mean that the job is worth more, making the job market more competitive. Employers are now forced to spend more per employee, causing more skilled and experienced workers to be desired. Companies may even begin to lay off employees they can’t afford to pay or begin to hire less (Geraghty). The combination of less jobs with stricter requirements would leave inexperienced young people unable to break into labor force, adding to the growing numbers of unemployed workers

By setting a minimum wage the consumers lose, while some workers will benefit from the price floor firms will hire less workers to fill positions. Thus, creating a surplus of workers looking for jobs. For this reason, the producer surplus decreases and consumer surplus reduces creating in deadweight loss.

This is very similar to a price floor because it is set above the market wage. The Gov. is concerned about unskilled workers and imposes a minimum wage of 15 dollars as an attempt to help those workers who have trouble paying the bills and supporting a family with the previous minimum wage. This causes the labor market to lose jobs, at a price of 15 dollars firms will demand less employees. The problem in New York is workers will love to earn a higher wage, but the downfall is increases in unemployment. Let’s say the market is in equilibrium demanding 150 jobs. If the minimum wage is increased the amount of jobs demanded will be less at 120 jobs. However at this point there are 200 workers willing to work, but only 120 jobs. In this case the quantity of labor demanded goes down while the quantity labor supplied goes up. Since there is 200 workers looking for jobs, but firms only higher 120. That means there is a surplus of 80 workers. The surplus is unemployment. This thus causes firms to choose whether they will decrease the amount of labor higher or increase the prices of consumer

In a paper titled “Four Reasons Not to Increase the Minimum Wage,” the Cato Institute, a libertarian think tank, offers four empirically backed consequences of increasing the minimum wage; these consequences include: the loss of jobs, low skilled workers being disproportionally affected and priced out of the job market, a minimal effect on reducing poverty, and higher prices for goods. The paper compiles a number of studies to support these

The idea of having a federal minimum wage is a good one. The idea is to protect low and unskilled workers from discrimination and allow all workers to earn a living wage. The recent debate on the floor, though, is whether or not to raise the minimum wage from the current $7.25 per hour up to $10.10 per hour. President Barack Obama made this proposal during his annual State of the Union Address on January 28, and following this there were many hot debates about it. The debates focused not only on the advantages and the disadvantages of increasing the minimum wage, but also the alternatives to increasing it.

In Australia, there is an emerging consensus that the government should take further actions to help mitigate and combat climate change. The current most accepted policy by government is the introduction of a carbon tax followed by an ETS in 2015. However we are focusing on the carbon tax in this essay and not the ETS. Here is a brief explanation of the dynamics of a carbon tax. A carbon tax is a tax on energy sources, which emit carbon dioxide (Co2). Therefore, carbon taxes address the problem of negative externality. Externalities are the subsequent effects when individual production or consumption of a particular good or service imposes costs or benefits on others. Therefore negative externalities are effects, which pose harm to others without their direct interaction (Basic Economics 2011). However, usual market practices and transactions do not reflect these cost and benefits in the prices involved in the transaction, or take into account in their transaction decision. Therefore this is a form of market failure. By imposing a cost on these negative externalities, the hidden cost can be addressed. Ultimately the purpose of a carbon tax is to reduce emissions of carbon dioxide and therefore reduce

If the minimum wage is above the equilibrium level, the quantity of labour supplied exceeds the quantity demanded. The result is unemployment. The minimum wage then raises the income of those workers who have jobs, but it lowers the incomes of those workers that cannot find jobs. Workers with high skills and much experience are not affected, because their equilibrium wages are well above the minimum. An example of a price ceiling is rent control. The goal of this policy is to help the poor by making housing more affordable.1/ 2

As can be inferred from the concepts of market and government failure; government intervention is not necessarily always a bad thing. In fact, sometimes it can lead to the advancement of a nation. Governments whose bureaucracies act in such a way can also be referenced as "developmental states"; which means that although the government is interfering with the economy, the bureaucracy is focusing on the long-term interest of the country versus the personal gain of a select few in the short-term. Amsden writes about this concept in his article, Getting Relative Prices "Wrong": A Summary, by bringing up the idea that, "...it promises industrial expansion if the state is strong enough merely to provide enough political stability for a long term investments, to point prices in the right direction, and then to exit" (Amsden 147). Amsden argues that governments such as Korea, although not necessarily perfect or free of

We can also use the supply-demand analysis to dissect the labor market when a wage-control is placed by the government (shown in Figure 2). By establishing a minimum-wage law, it mandates a price floor above the equilibrium wage; therefore, the rate of unemployment among unskilled workers increases. When wages increase, a greater number of workers are willing to work while only a small number of jobs will be available at the higher wage. Companies can be more selective in whom they choose to employ causing the least skilled and inexperience to be excluded.

In the United States, minimum wage has remained at a low number for several years. Minimum wage is defined as the lowest possible income that an employer can legally pay an employee. This ensures that all people are fairly paid and not defrauded by companies or businesses. Minimum wage is considered a price floor and the minimum wage laws determine the lowest price possible that any employer must pay for labor. In an economic model, the quantity of supplied is greater than the quantity demanded and the minimum wage is above equilibrium price and quantity. Minimum wage prevents labor supplied and labor demanded from moving

Regulations imposed by the government in any economy determine the market efficiency and growth. Policies and laws governing the flow of goods and out flow determined the internal trade affairs. When the government formulates policies and regulations, which is the market conducive, efficiency is enhanced. In such instances, the outcomes of the market yields can be predicted. Such ability of the policies and regulations to enhance efficiency in the markets can be enabling the government to have prior arrangements and plans concerning future economic goals. On the other hand, as the governing body there is a need to establish the effectiveness of the current policies in enhancing marketing efficiency. However, there is a need to establish the criteria for determining the correctness and effectiveness of the regulations which are to be set. Governing body should intervene in the control of the market regulations though independent bodies and private sectors should be involved in such regulations formulations. Many economies, such the United states and United Kingdom, the government has the power to intervene in the market policies. When the market fails in such instances, the government is blamed for the failure. The modern economies advocates for more freedom of choice in the formulation of regulations of the markets. Others concentrate on the efficiency of the policies and regulations in the achievement of the market goals.