The Essay will consist of a typed summary of the main points of an article from

Question

The Essay will consist of a typed summary of the main points of an article from Real World Micro. From your reading, you should relate how that economist deals with issues such as poverty, discrimination, educational opportunities (or lack of), and other

societal issues facing groups.

Here is the Essay:

Don’t Blame The Minimum Wage. By Paddy Quick.

When businesses organize production, they figure out what different people they need to employ and in what numbers. A restaurant, for example, needs cooks, waiters/waitresses, dishwashers, cashiers and, sometimes, after-hours cleaning staff. It needs managers to keep track of who is doing what and when. Some of these people are paid a lot more than others, but they are all necessary. The lower-paid workers are as important as the higher-paid workers. Although the restaurant owner would like to pay them all less so that his profits would be higher, he needs them all.

This is important to understand. A bicycle needs two wheels, two pedals, a seat, s set of gears, and any number of parts that connect them all together. Which is most important? The front wheel? The rear wheel? The seat? The pedals? The fact that a pedal costs less than a wheel doesn’t make it any less important. Similarly, all of the people who work in a restaurant play their part in the production of the meals, even though they “cost†their employer different amounts. If the pedal of a bicycle cost a bit more, it wouldn’t be eliminated. Why then do people think their job would be eliminated if they had to be paid a little more?

People are laid off for many reasons. One possibility is that employers just want to shuffle people around so that everyone feels under pressure. There are always a lot of people unemployed, and it is pretty easy to lay one person off and hire another to replace her. The new person is now likely to work harder, even if the previous employee was doing a great job. There are also changes in the number of customers in different locations, and competition from other restaurants for these customers.

When the minimum wage increases, employers have to pay higher wages not only to those who received the old minimum, but also to those whose positions paid an extra dollar or more above that. If they decide to reorganize production, they may well decide to all of these workers rather than the ones at the very bottom of the pay scale. Information technology, for example, may displace more highly paid workers who are responsible for inventory management at corporate headquarters, rather than the people who have direct contact with customers.

Corporations are, of course, always “crunching the number,†figuring out whether they can save money by changing the combination of people and things they purchase in order to produce the pizzas and other things they sell. Sometimes they may be able to do so, but other times it may not be possible.

So lets look specifically at the fast food restaurants business to see the effect on employment of an increase in the minimum wage. It turns out that there isn’t much that fast-food restaurants can do when wages go up-other than hand over a small portion of their huge profits to their workforce!

Fast-food corporations, such as McDonald’s spend millions lobbying Congree in opposition to raise in the minimum wage, pretending that their opposition has nothing to do with its effect on their profits. Instead they argue that it would break their hearts to have to lay off some of the poor people they employ.

A famous study by two well-known economists Alan Krueger of Princeton University and David Card of the University of California, Berkeley, looked very carefully at what happened to fast food employment in New Jersey in 1992 after that state raised its minimum wage. They compared New Jersey with its neighboring state, Pennsylvania, which did not raise its minimum wage. Fast food industry executives had argued that they would be “forced†to lay off workers if New Jersey raised its minimum wage, but the facts proved otherwise. New Jersey workers got higher wages, but they did not lose their jobs. So although it is possible that an increase in the minimum wage could lead restaurants to lay off workers, it turns out that this doesn’t actually happen in the fast food industry.

After they studied minimum wages in the fast food industry, Krueger and Card went on to prove that increasing the minimum wage across the country as a whole has little or no effect on unemployment. This position was supported by a total of 650 economists, including five Nobel prize winners, in a 2006 letter supporting the bill to raise the federal minimum wage to $7.15 an hour.

Production requires workers. Workers use tools and machinery, ad businesses have the capital that is needed to buy these, but it is workers who turn the ovens, pizza dough, and tables into meals for their customers, and it is workers who make the computers that increasingly “machinery†production. The big question, according to Adam Smith and other classical economists such s David Ricardo and Karl Marx, is how income is distributed, and in particular, how much of it goes to wage-earners.

Adam Smith, for example, believed that the level of wages depends on workers bargaining power, and thought it obvious that the government was on the side of the employers. He did, however think that if the rate of unemployment was low, wages could increase. Today, one part of the government, the Federal Reserve Board, takes this piece of theory very seriously, and makes sure that it keeps the rate of unemployment high enough to preven wages from increasing! Smith’s theory implies that we need to organize, both at the workplace and within the political system, to strengthen the power of labor against the power of capital. Adam Smith also believed that wages could not sink below the minimum needed for workers to survive and bring up children. But unfortunately, when there is a lot of unemployment, workers find themselves in a “race to the bottomâ€: “I’ll work for whatever you’re willing to pay me.†“No, take me. I’ll work for $1 less.†“Please, please, I’ll work for food.†During the great depression, massive unemployment made this a terrifying possibility, and led to the enactment of minimum wage legislation. This was an important victory for an organized working class. But it is an ongoing struggle. With a decent minimum wage and low unemployment, we can get the higher wages that out hard work entiles us to.

Explanation / Answer

http://www.csus.edu/econ/Jouganatos Econ 1B-03 syl F12.pdf

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.