What are your thoughts about minimum wage legislation what kind of a price control policy is this who gains who loses are there alternatives to this legislation for achieving the same policy objective?

Answer 1

What are your thoughts about minimum wage legislation? What kind of a price-control policy is this? Who gains? Who loses? Are there alternatives to this legislation for achieving the same policy objectives? What role do demand and supply elasticities play in determining outcomes?

What are your thoughts about minimum wage legislation?

Minimum wage legislation is a government intervention. The main reason for government intervention is to correct for market failure, to achieve a more equitable distribution of income and wealth and to improve the performance of the economy. Employment laws may offer some legal protection for workers by providing a price-floor in the labor market through the setting of a minimum wage.

What kind of a price-control policy is this?

This kind of price-control policy is directed at the control of inflation, but it may also indicate efforts to alter the distribution of income among incomes-policy, industries, locations, or occupational groups.

Who gains?

Price controls almost always benefit a subset of consumers who may have a particular claim to public sympathy and who, in any case, have a strong interest in lobbying for controls. Minimum-wage laws may create unemployment among the unskilled or drive them into the black market, but minimum wages do raise the income of those poor workers who remain employed in regulated markets

Who loses?

The unskilled workers lose because the companies become picky in hiring. Companies hire less personnel when the minimum wage is increased.

Are there alternatives to this legislation for achieving the same policy objectives?

Yes, an alternative to this legislation is what California is doing. The state of California offers Calfresh, which is food stamps for qualified residents who are categorized as low income. Section 8 of the Housing Urban Development help defray rent for qualified low income. Qualified residents' cost of living is defrayed by government incentives. This is called pump priming. The action taken to stimulate an economy, usually during a recessionary period, through government spending, and interest rate and tax reductions. The term "pump priming" is derived from the operation of older pumps; a suction valve had to be primed with water so that the pump would function properly. As with these pumps, pump priming assumes that the economy must be primed to function properly once again. In this regard, government spending is assumed to stimulate private spending, which in turn should lead to economic expansion.

What role do demand and supply elasticities play in determining outcomes?

A minimum wage can increase low-skilled workers' wages at the expense of other factors of production - such as higher skilled workers or capital - and hence can be potentially useful for redistribution. However, it may also lead to involuntary unemployment, thereby worsening the welfare of workers who lose their jobs.

A binding minimum wage is desirable as long as the government

values redistribution from high- to low-wage workers, the demand elasticity of low-skilled labor is finite, the supply elasticity of low-skilled labor is positive, and most importantly, that the unemployment induced by the minimum wage is efficient, i.e. unemployment hits workers with the lowest surplus first. Minimum wage is desirable if unemployment induced by minimum wage is efficient and the government values redistribution toward low-skilled workers.

The resulting optimal minimum wage is decreasing in the demand elasticity because a minimum wage has larger unemployment effects when the demand elasticity is higher. The optimal minimum wage is increasing in the supply elasticity because a high supply elasticity implies that marginal workers have a low surplus from working (since many would leave the labor force if the wages were slightly reduced).

References:

http://tutor2u.net/economics/revision-notes/as-marketfailure-government-intervention-2.html

incomes-policy

http://www.econlib.org/library/Enc/PriceControls.html

http://www.investopedia.com/terms/p/pump-priming.asp#ixzz1bsJFTYk9

http://elsa.berkeley.edu/~saez/lee-saezJan10minwage.pdf

http://www.princeton.edu/~davidlee/wp/w14320.pdf

Readings:

http://www.isil.org/resources/lit/jobs-min-wage.html