Please read the following articles: Ahmanson, H. (n.d.). Three new testament roo
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Question
Please read the following articles:
Ahmanson, H. (n.d.). Three new testament roots of economic liberty. Action Institute for the Study of Religion and Liberty. Retrieved from http://www.acton.org/pub/religion-liberty/volume-7-number-1/three-new-testament-roots-economic-liberty.
Knopf, M. (2014). A biblical case for raising the minimum wage. Huffington Post, February 18, 2014. Retrieved from http://www.huffingtonpost.com/rabbi-michael-knopf/a-biblical-case-for-raisi_b_4804908.html.
A frequent topic of discussion at all levels of government (i.e. local, state, or federal) is the enforcement of minimum wage laws. A minimum wage is a price floor for the labor market. After reading the assigned chapters in the textbook for this week and the above articles, please consider the following questions:
What are the economic results of price floors, in general, and minimum wage laws, specifically? In other words, how do minimum wage laws impact labor markets?
Why are minimum wage laws put in place?
Find articles written by economists discussing the effectiveness of minimum wage laws. Students should find at least one article that supports the effectiveness of these laws and one article that does not support. What are the key arguments for each? (Please provide the appropriate APA reference.)
Should Christians support the enactment or raising of minimum wages?
Explanation / Answer
A price floor, if set above the market equilibrium price, means consumers will be forced to pay more for that good or service than they would if prices were set on free market principles. Governments set price floors for a number of reasons, but the typical result is an increase of supply and decreased demand
Increased Supply
Price floors can have differing effects depending on other government policies. If the government agrees to purchase a specific maximum of unsold products at the price floor, it incentivizes a business to increase supply or at least to stay in the industry despite slow sales. Many governments do this for areas they see as strategically or politically significant, such as agriculture, or to prevent what they consider to be unfairly low prices of its products. If a foreign government sets a price floor for coffee beans, for example, and then agrees to buy the surplus up to a certain amount, it encourages growers to maintain their operations by placing an effective hedge against price fluctuations.
Reduced Demand
Because prices are higher with a price floor, fewer customers likely will be interested in purchasing affected goods at the mandatory minimum price point. Combined with the increased production, this may lead to a surplus of goods available for sale. In some instances, the government may store the excess for when prices increase above the mandatory minimum. In others, it may dispose of the products in other ways – for example, by giving surplus agricultural products to programs that feed the hungry.
General Effects
Price floors affect small businesses in a number of ways. For example, the minimum wage is a classic example of a price floor that prevents businesses from paying workers what the government considers to be excessively low amounts, regardless of what the market dictates. This may disincentivize a business from hiring its desired amount of labor for low-skilled jobs.
Political Measures
Though price floors reduce market efficiency, that doesn’t always make them bad policy. Governments impose a price floor because they judge the policy to have an effect more valuable than the consequences. A local government, for example, might set a price floor on parking fees in a municipal area. That would cause its residents to have to pay more than the market would otherwise dictate to park and lead to empty parking lots, but it could meet the municipality's other goals of reducing congestion and encouraging residents to walk or bike downtown.
The effect of a minimum wage depends, in part, on whether the labor market is competitive—or not, in which case employers exert significant power over wage decisions. We review the employment effects of the minimum wage under two extreme assumptions: In the first case, there are a lot of employers competing to attract workers; in the second, there is a single employer. These extremes give us two benchmarks from which we can discuss specific situations and markets.
A perfectly competitive labor market is a composite of many firms that are in competition for workers. Firms have no power to set wages; the market determines a competitive wage. If a firm deviates from this wage, it either pays less and loses workers or pays more, sustains losses, and exits the market.
At the other extreme is a labor market that is a collection of small local markets. In each local market, some firms are in a dominant hiring position (think of a large retailer near a small city, for example). In such an employer- dominated market (referred to as a monopsonistic market by economists), a major employer has the power to set a wage unilaterally without fear of competition.
Arguments in favour of a minimum wage mostly hang on the idea that firms have a responsibility to ensure that their workers earn enough to live on. If a firm can’t pay its workers enough to live on, then it isn’t a viable business, because it is dependent on wage subsidies.
Also, If there is no minimum wage, therefore, then the co-existence of unemployment with in-work benefits drives down wages to below subsistence level. As the majority of government tax income comes from households, not firms, over time this becomes unsustainable: all unskilled workers become in effect employees of the state, and the higher skilled are forced to subsidise the wages of the unskilled through rising taxes.
Yes, the idea of minimum wage must be supported as it has many pros.
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