Examining the Minimum Wage: Impact, Debates, and Economic Perspectives

Minimum wage is the least pay that the firms can lawfully compensation their worker. It can also indicate the minimum price at which employers cannot sell their labor. The demand and supply models point to the welfare and employment losses from the minimum wages. The minimum wage is meant to protect the vulnerable employees from exploitation by the employer (Lundstrom 29). They are means to reduce or limit severe poverty. The minimum wage is binding in an event that the government sets it’s above the equilibrium. The government desires that the minimum wage will not drop below the set the price that binds the market.

Question 2

While there are distinct minimum wages for various awards and jobs, each of the set minimum wages stems from one critical minimum wage which businesses in Australia have to abide by. At the present the minimum wage standards at 719 dollars for each 38 hour week before any form of taxation or 18.93 dollars per hour. If the casual workers are employed they are also covered by the minimum wage but are also entitled to receive 25 percent of the casual loading.

Question 3

Estimating the equilibrium point

D = S = 1,500,000 – 60,000W = 120,000W – 1,200,000

D = S = 2700000 = 180000W

W = 15

The equilibrium employment level is equilibrium is $15. To get the equilibrium wage the W can be substituted back into the labor supply or labor demand equitation.

Ws = 1,500,000 – 60,000 (15) = 600000

Based on the above equation the equilibrium wage rate is 600000 dollars.

     w                                                     S

min w                                              

600,000*

                                                                     D

                               ED  600,000* EST                 

From the above curve, the equilibrium wage and labor are 600,000 dollars. Setting a price above or below the equilibrium will be undesirable.

Question 4

Consumer surplus

     w                                                     S

                      A                         

min w                                              

15*

                    B   

     10                                                                                               

                                                                     D

                               ED  600000* ES                 E

i) Consumer/firm surplus

A: Consumer surplus

Consumer surplus is equivalent to ½ *height* Base

Consumer surplus = ½ *10 * 600000= 3000000

Producer/Worker surplus

B: producer surplus

Producer surplus = ½ * Height * Base

Producer surplus = ½ * 5 *600000 = 1500000

Producer surplus = 37.5

ii) Total surplus

Producer surplus plus consumer surplus

 Total surplus = 600000+1500000= 4500000

Question 5

If the Fair Work Commission sets the price above the equilibrium (19 dollars per hour) it will result in an excess number of persons who are willing to work. Most persons will be willing to find a job at the prevailing higher wages, but they would be unable to find any (Rybczynski, and Sen 120). In addition, most firms are likely to close because they might not be in a position to offer employees higher wages. The excessive pressure will force the government to intervene and set the price of wage back at the equilibrium point.

i) Number of hours of employment that are exchanged in the market

If 1 hours equals to 19 dollars

D = 1,500,000 – 60,000W

D=1500000-60000(19)

D = 360000

ii) Surplus of shortage

At equilibrium the demand for labor is equivalent to D = 1,500,000 – 60,000W

At equilibrium D = 1,500,000 – 60,000 (15) =600000

After imposition of the minimum wage at 19 dollars per page

D = 1,500,000 – 60,000 (19) = 360000

 The shortage of labor created = 600000-360000 = 240000

Question 6             $25

i.

                                             Buyer

Consumer surplus                Surplus

     w                                                     S

    19                      

                      A                         

min w                                                  C

15*                                                                                                                        

                 B                                   D                                  

     $13        A and B seller surplus                                     

                                                                          360000       600000

i. consumer surplus

Consumer surplus = ½ * height * Base

Consumer surplus = ½ * 360000 * 6 = 1080000

ii. Producer surplus

Producer surplus = ½ *height * Base

Producer surplus = *

Producer surplus = 

Producer Surplus = 3, 780,000

iii. Total surplus = 3780000 + 1080000 = 4860000

iv. Resources lost in job search

D = 1,500,000 – 60,000(19) =360000

S = 120,000(19) – 1,200,000=1080000

Resources lost = 1080000-360000 = 720000

v. Dead weight loss

Dead weight loss = ½ * base * height

Dead weight loss = ½ * 6 *240000

Dead weight loss = 240,000

Question 7

i) Firms: Following an introduction of the minimum wage the firms are worse-off because means they will pay wages that most of them can’t afford. This will force some to shut down because of the unsustainable wages.

ii) Worker: In the short run the workers will be better off because of the increased wages. However, as more firms begin to close because of the increased wages more persons will not secure jobs. In the long run, more persons will be unemployment. The demand for employment is likely to rise.

iii) The society: the society is worse-off because most firms will either retrench employees or shut down which will create a large number of unemployed persons. However, in the short run, the society might benefit because of the increased incomes that can be translated into higher demand.

Question 8

i. consumer surplus

Consumer surplus = ½ * Base * Height

Consumer surplus = ½ * 360000 * 6 = 1080000

ii. Producer surplus

Producer surplus = ½ *base area * height

Producer surplus = *

Producer surplus = 

Producer Surplus = 3, 780,000

iii. Total surplus = 3780000 + 1080000+720000 = 5580000

iv. Deadweight loss

Deadweight loss = ½ * base * height

Deadweight loss = ½ * 6 *240000

Deadweight loss = 240,000

Question 9

Based on the calculation the society is better off without the minimum wage. Minimum wage makes individuals lose more resources in the job search. In addition, it leads to an overall disruption of the economy.

Question 10

From a consequential perspective, minimum wage is not justified because it does more harm to the general economy. The minimum wage can disrupt the overall economic system considering the supply and demand where the economy is at equilibrium. The imposition of a higher minimum wage can disrupt the overall price mechanism implying that the market will not clear. The minimum can also result in unemployment because of the rise in the number of workers who cannot offer their services at the prevailing rate. The minimum wages can also cause a large number of individuals to lose their jobs. This arises because the employers are likely to retrench the unskilled workers in favor of the qualified ones.

Question 11

The moral justification is based on the notion that if some individuals are better off, then it does not matter who is hurt. Increasing the minimum wage is subsidized by the wages of the persons who will not be employed. The markets are imperfect and the labor market tends to have the highest asymmetries in the sense of financial and material proprietorship (Rybczynski, and Sen 150). The majority of the minimum wage earners are the vulnerable individuals, the second rate citizens, the immigrants, the females, the old, the young and the sociologically vulnerable groups. Even a little increase in the minimum wage can be god new to a class of individuals. The employers might face the increasing expenses but the workers also face shelter and food. The minimum wage ought to be treated within the moralistic or ethical framework without considering the economic consequences.

Question 12

The deontological ethical framework relies on the rules to distinguish wrong from right. The model requires persons to perform their duty by following the rules. The model does not require weighing the benefits and the costs in any situation. This enables persons to avoid uncertainty and subjectivity because the rules must just be followed (Wilson 250). Because of the minimum wage, various employers are stopped from engaging in low wage transaction that has an adverse impact on the vulnerable members of the society. The deontological ethical framework supports the minimum wage because it results in the best outcome mainly for the vulnerable members of the society.

References

Lundstrom, Samuel M. "WHEN IS A GOOD TIME TO RAISE THE MINIMUM WAGE?". Contemporary Economic Policy, vol 35, no. 1, 2016, pp. 29-52. Wiley, doi:10.1111/coep.12169.

Rybczynski, Kate, and Anindya Sen. "EMPLOYMENT EFFECTS OF THE MINIMUM WAGE: PANEL DATA EVIDENCE FROM CANADIAN PROVINCES". Contemporary Economic Policy, vol 36, no. 1, 2017, pp. 116-135. Wiley, doi:10.1111/coep.12241.

Wilson, Shaun. "The Politics Of ‘Minimum Wage’ Welfare States: The Changing Significance Of The Minimum Wage In The Liberal Welfare Regime". Social Policy & Administration, vol 51, no. 2, 2017, pp. 244-264. Wiley, doi:10.1111/spol.12286.