Economics Assignment 1 Essay

Submitted By khusson
Words: 2084
Pages: 9

Minimum Wage war has again heated up as President Obama in a State of the Union address reveals that a rise in minimum wage to $10.10 will be coming through on an executive order. Obama is seeking congress to pass the $10.10 minimum wage but is unlikely that they will as republicans and democrats differ greatly on this issue (Coy). Will Republicans pass the minimum wage or will they block it? With the Great Recession recovery limping along inequality appears to be generating wide spread attention with the focus of growing poverty’s effects on millions of Americans. As the bottom rung of society grows to a crowded 3.8 million many Americans find a 12 percent loss of value since its 2007 hike to $7.25.
“As a matter of public policy, the solution is obvious. There are few government interventions that can match the elegance of a higher minimum wage. It boosts the fortunes of the working poor and the economy at large, with minimal trade- offs. Raising the minimum wage does little or nothing to dampen job growth. The Congressional Budget Office estimates that an increase to $10.10 would trim payrolls by less than one-third of one percent, even as it lifts nearly 1 million Americans out of poverty” (Dickinson).
What drives the determination of wages as we look at it from an economic view? Are we looking at perfect and imperfect markets or is only about the working poor?
Theory
The model of economic theory that relates to this issue would be Supply and Demand. The supply and demand being one of the most fundamental concepts of a market driven economy represent a classical view. Demand refers to how much (quantity) of a product or service is desired by buyers. The amount of a product people are willing to buy at a certain price is the quantity demanded. Businesses are willing to supply more of a good or service at higher prices because the potential for profits is higher. Supply represents how much the market can offer. The amounts of a certain good producers are willing to supply when receiving a certain price is the quantity supplied. In regards to minimum wage one can see the demand for labor comes from indirect satisfaction and employer makes from increased revenue from selling their products. The demand for labor is said to be dependent on, or derived from, the demand for the product being produced .The supply of labor refers to quantities of labor workers are willing to offer at various wage rates, other things being equal. A competitive labor market without discrimination will result in market wage equal workers’ marginal revenue product (Sharp, Register and Grimes) . With this analysis one would expect an equilibrium wage set above to be a surplus of labor and below the equilibrium would cause unemployment. (Sharp, Register and Grimes)
PERFECT MARKETS
In perfect labor markets, everyone is a wage taker - both the employee and the employers. On the one hand, the employer and his firm cannot control the market as there are too numerous firms and the firm is a price take on the product market and labor market. On the other hand, the workers cannot control their wage as they have no economic power to do so or they are of a clearly definite type. In perfect competition there is a free movement of labor. Everyone can enter the labor market or to switch jobs. Moreover, both workers and employers have enough information on the labor market state -- wages, demand, productive level of workers etc. The most common thinking in labor markets is that all workers in the same position are equal. There are two driving forces concerning the supply of hours by an individual worker while working, the worker sacrifices its leisure time and work may be unpleasant. The worker experiences marginal disutility of work, which tends to increase as work hours increase. To deal with the marginal disutility of work, a wage could be raised. This would lead to people willing to work more hours in order to have a greater…