Question
Based on the BOLD answers below. Which answers are correct? A frequent argument in favor of minimum wage laws (and also Living Wage laws) is
Based on the BOLD answers below. Which answers are correct?
A frequent argument in favor of minimum wage laws (and also Living Wage laws) is that they redistribute income to low wage, typically unskilled, workers. Firms using low skill low wage workers will be forced to pay a higher wage and low wage unskilled worker's incomes will increase. That is the simplistic argument proponents of these laws make.
However, any analysis of price ceilings or price floors, e.g. a minimum wage law, must include an analysis of the Enforcement Problem and Non-Price Rationing.
As it applies to minimum wage laws, the Enforcement Problem is that employers and workers may simply agree to hire and work at a wage below the minimum wage because for employers and some workers (the ones who wouldn't get hired if the law was enforced), it is mutually beneficial to do so.
The Non-Price rationing problem arises because if the minimum wage law is effectively enforced, there is an excess supply of labor at the minimum wage and some rule must be applied to determine who gets a job at the minimum wage and who ends up unemployed.
In the previous questions based on the article "California's minimum wage goes up again in 2019, and it's even higher in these cities" an economic analysis was conducted taking into account the Enforcement Problem and Non-Price Rationing.
The analysis shows the simplistic assertion that minimum wage laws will redistribute income to low wage unskilled workers is wrong. The situation is much more complex.
If you are a US citizen and the minimum wage law is effectively enforced then you end up beingbeing better/being worse offbecause employers will hireillegal workers of legal worker/legal workers over illegal workers.
If you are an illegal worker and the minimum wage law is not enforced then you end up beingbetter/being worse offbecause employers will hireillegal workers over legal workers/legal workers over illegal workersbecause they can pay them less than the minimum wage.
Minimum wage laws are not about redistributing income to low wage unskilled workers but are actually about redistributing income to a particular subset of workers. You don't know which subset that is unless you include in your analysis the effects of the Enforcement Problem and Non-Price Rationing.
The redistribution is not from rich to poor as minimum wage proponents argue. It is about redistributing income from one set of low wage workers to another set of low wage workers.
If the minimum wage is imposed by a single state there are even more effects due to the Law of Unintended Consequences.
As analyzed in the previous questions, the CA minimum wage law will create a wage differential between CA and other states. Workers who are unemployed as a result of the CA minimum wage law will leave the state in search of jobs and higher wages. This will cause thedemand for labor/supply of laborto decrease. Employers forced to pay the higher minimum wage will also leave CA causing thedemand for labor/supply of laborto decrease.
Although a particular subset of workers may benefit from the minimum wage law, low skilled workers in totality are overall not better off, employers are worse off, and the overall CA economy is diminished making collective CA wealth creation go down.
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