Custom essays: Price Controls and Equilibrium

1. In economic terms, what are the market consequences of a price floor? Discuss the economic implications of implementing a legal minimum wage.
The world experience of the organization of wages in the economic models, based on wage labor and market production, shows that one of its features at a certain stage of development of these models is the establishment of the so-called minimum wage.
While setting wages in the modern capitalist world, employers and employees agree on the levels of payment for their work, taking into account all factors affecting the differentiation of such payment, and the extent of such differentiation from the lower (minimum) payment to the highest. It is considered that the objective reason for such intervention is the vulnerable position of an employee as compared to the predominant position of the employer (the owner of the organization). The minimum wage in such a situation is intended to prevent the establishment of such employees wages which did not provide them (using the terminology of the ILO), “satisfactory standard of living”. (ILO 2006)
In particular, the 131 Convention of ILO states that among the purposes of the minimum wage are: “The protection of employees from unfairly low wages” and other acts “to protect the disadvantaged groups of employees.” (ILO 2006)
In the market-oriented economy levels of wages, including the minimum wage, reflect the interests of both employees and employers, and these interests are reflected in the course of trading on wages, aggregate wages, taking into account differences in the cost of labor of different skills.
The value of the minimum wages fixed by the state for the relevant employee groups or activities can not be indifferent to the wage rate established on the basis of agreements reached without the participation of the state, particularly with respect to wages for simple work. If the minimum wage will be very different from the rates set during the negotiations in the lower side, it would mean the creation of individual employers who are in the scope of the conditions of minimum wage, competitive advantages compared with those who set lower wages above minimum wage. This means that inefficient owners will be in a better position. Therefore, the size of minimum wage can not focus on the lowest level of satisfaction of the needs of workers. Minimum wage should be high enough to encourage owners of enterprises with low efficiency to improve productivity and achieve profit at least in minimal amounts.
As a basis for establishing the optimal level of minimum wages can be used by its ratio to the average wage. Using this figure will make a minimum wage, on the one hand, as a minimum of social guarantees for the working population and, on the other hand, as one of the important elements of labor market regulation and in general, an increase in the minimum wage leads to an increase in the demand for labor force in the labor market.
2. What do the laws of supply and demand predict would be the result of an immediate removal of minimum wage in terms of the price of labor and the quantity available?

The general level of wages in the first place depends on supply and demand of workers in specialty occupations, specific skills at a time. Supply and demand in the labor market depend on many factors. Growing demand for labor increases wages, and increase in supply reduces this level.
In general, with increasing the minimum wage labor market demand increases. Establishing a minimum wage, first, have a negative effect on the mobilization of the work of unskilled workers and young people and, secondly, leads to the most controversial effects in industries with low wage (retail). Employers often react to an increase in minimum wage deterioration of working conditions, increase the intensity of labor, reduction of various benefits, etc. In general, workers are benefiting from the growth of minimum wage.
But some free market leaning economists, like Steven Landsburg, state that minimum wages increases do not affect employment significantly.(Landsburg)

3. Do you believe that the minimum wage should be raised in order to provide workers with a better standard of living? Why or Why not?
The first aim of raising a minimum wage is to provide workers with a better standard of living.
Supporters of raising the minimum wage argue that low wages make millions of dollars to the poor, unable to escape from poverty (for example unable to pay for their studies, or for the medical insurance) and overload the state social funds (so that the state is forced to help the poor to pay for health care, to subsidize their housing, to provide food aid, etc.).
Raising the minimum wage will increase the living standards of Americans and reduce the exploitation of employees, as employers begin to appreciate their employees. This stimulates consumption – low paid workers will get more money that they will actively spending, urging the American economy. In addition, the economy will get a second wind, because the use of low-skilled labor force, applied in several industries, will become unprofitable and force companies to upgrade their business and train employees. (Card & Kruger 2006)

4. Is the minimum wage law an effective poverty-fighting measure? Discuss at least one alternative policy.
It is interesting to note that both supporters and opponents of raising the minimum wage operate on very vague evidence. It is ironic, but added relatively little serious research on the impact of minimum wages on the economy and social sphere of the United States.
The main problem is that for almost all of modern American history, the vast majority of employees, de facto pay more than required by law (currently the average American’s earnings tripled over the minimum wage). National Center for Policy Analysis estimated that in 2005 only 2.5% of employees United States received the minimum wage established by the federal government – that is, $ 5.15 per hour, with 60% of them were engaged not in full working day. (U. S. Department of Labor)
Therefore, the impact of the minimum wage for American business and the welfare of Americans is relatively small, and studying this problem is extremely difficult.
In the book of economists David Card and Alan Krueger “Myth and Measurement: The New Economics of the Minimum Wage,” they argued that in all cases, increasing the minimum wage led to an increase in income and has not been accompanied by rising unemployment.
In 2008 were conducted independent research of Michigan State University and the University of Massachusetts, which showed that raising the minimum wage in Michigan and Massachusetts led to higher unemployment among low-income workers, the rest have to earn more, but the cost of living in both states has grown significantly. (U. S. Department of Labor)
Also Nathan Newman, the renowned sociologist and director of research center Progressive States Network, published an article which argued that the loss of jobs in this case does not lead to severe consequences, as the remaining low-paid workers who receive large salaries for account of taxes levied on them are able to support laid-off colleagues (so that social funds, for example, unemployment benefits, get more money and may have a more substantial assistance to the unemployed).
All these facts prove the idea that the minimum wage law is not always an effective poverty-fighting measure, and some alternative policies can be more efficient.

References:
Card David and Krueger Alan B. ( 2006) . Myth and Measurement: The New Economics of the Minimum Wage”. Princeton, N.J.: Princeton University Press
Eyraud F. and Saget C. (2005) The fundamentals of minimum wage fixing. Geneva, ILO. Retrieved from: http://www.ilo.org. 24 August 2010
ILO (2006). Minimum wages policy. Retrieved from: http://www.ilo.org. 24 August 2010
MacKenzie D.W.. (2006). Mythology of the Minimum Wage. Retrived from: http://mises.org. 23 August 2010
U. S. Department of Labor // National Compensation Survey: Occupational Wages in the United States, June 2009.