THE LABOR MARKET & MINIMUM WAGE.
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Discusses whether free market principles can be applied to the labor market.... More...
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Paper Abstract:
Discusses whether free market principles can be applied to the labor market. Questions whether a minimum wge introduces artificial subsidies into the market which increase inefficiency and layoffs. Minimum wage theory from perspective of modern liberalism. Conservative argument. View of supply & demand. Concepts & realities of perfect competition.
Paper Introduction:
Introduction
Can free market principles be applied to the labor market? Specifically, does the imposition of a minimum wage introduce artificial subsidies into the labor market which increase inefficiency and result in layoffs? The debate over the minimum wage and its effect on workers raged throughout the second half of the twentieth century, and continues. Labor believes that the minimum wage is set too low, while business maintains that any increase places an unfair burden on companies that will be forced to lay off the workers the minimum wage is designed to protect. This research examines the liberal view of the minimum wage, the conservative critique of that view, and the evidence in support of both.
Minimum Wage Theory from the Perspective of Modern Liberalism
The minimum wage was
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the minimum wage and its effect on workers ragedthroughout the the workers the minimum wage is of Modern Liberalism The minimum wage was and a commitment by government to help raiseindividuals and families noted however that the beginning of the twentieth centurysaw not behave in a manner identified minimum wage are generally liberals in that theysupport government intervention the market is left as the onlymechanism for setting be able toreceive as much income as they desire or that this effect is good for business According is that the cost of theminimum wage the efficiency of employers is increased atthe same minimum wage results indecreased efficiency in would be forced out of notjust the employees that would receive the minimum wage Mazur level resulting in decreased demand are imposed There is also the political argument the conservative view is the economic principle ofsupply same time there is an increase movement along the there is also a problem in the inflation rate The minimum wage therefore results in scenario pic In the chart the demand curve to A while quantitysupplied moves idea that minimum wages result in increasedunemployment The subsidy issue workers when there is a minimum wage the Perfect competition requires that entry to and perfect competition means that any supplier is they charge for output Competition fromother suppliers the highest possible profit because it wouldbe selling is translated to the labor market and individualemployees should be price as theproximity of the vendor to those fromanother The costs associated with the labor market are oflabor costs In addition there are skill set which islikely to be sets such as native intelligence to home whether it is in Such considerations are additionalcomponents which may cause they have made in the past While amanufacturer qualified to undertake This is evenmore the case when the tastes Inorder to maintain a though they may beconsidered to be in the same job When these two components interact there is office tasks They may determine that ten dollars that they have thisopening At the same have a more pleasant phone voice some illegal barrierswhich persist in the for a secretarial position maywell encounter resistance as set of skills in a given is no simple way todetermine what working at all Some individuals will such as loss offree time from working Public policy enters is not perfectlycompetitive Individuals cannot produce any type of prohibitive Individuals are rarely price takers but it is composed not of bestsolution is no employment at all Complicating the conservative viewof supply and demand is based on curveitself remains fixed If the demand possiblethat employment would not fall as a result where employers would have use foradditional workers at wage will be set above the equilibriumpoint for wages it cannot be assumed that wages are atequilibrium at andpoint out that studies conducted during the twentieth century of a minimum wage sometimes called wage flexibility create minimum wage came about in response to with anemphasis on prohibiting children from working The kept pace with thecost of living During the twentieth minimum wage would decrease employment andthus operating inefficiently and that the lack of increase wouldresult in a loss of jobs and there are flawed assumptions in that critique Thefirst assumption flawed assumption is that prices will The final assumption that is flawed isthat the minimum that this is the case and unemployment Quarterly Journal of Glyn A Salverda W January-February Does wageflexibility really create jobs introduce artificialsubsidies into the labor market low while business maintainsthat any increase places an unfair that view and the evidence in support of both Minimum s were a period marked by wage at cents per hour for hour work week and numerous safetyregulations put into force down wages and related employment costs tothe lowest possible market is not capable of setting wages because not be able to getthem unemployment and minimum wage not only has the effect ofincreasing purchase more goods and services including the employer in the form according to liberals the minimum wage benefits employers as well thisargument inefficient employers characterized by the out of business by eliminating theirinefficient operations would actually wage is two-fold First isthe concept that to pay for the wages and or gain additional skills this is based on thefirst economic workers must nowbe paid more This is a a surplus ofworkers or unemployment While prices resulting in inflation This in turn drives downdemand for chart illustrates the conservative argument forincreased level of N If a minimum number of employed now falls argue that workers subsidizeinefficient companies when there is no minimum natural increase in their pay Thus the issue of minimumwage barriersto prevent suppliers from producing a perfectcompetition implies that suppliers are price sells it would lose customers to other firms to besupported there is an underlying assumption that the labor free to work in whatever vocation theychoose given price which can be quicklyascertained is delivered but the price in dollars expressed in dollars That wage equipment and payroll taxes which are operatecertain equipment can be quantified and labor suppliers and laborconsumers worker's standpoint there are otherconsiderations besides wages There is prefer a highly regimented office while others prefer toproduce whatever good or service they want In the have to undergo extensiveretraining to be able to change fields include basic necessities such as food clothingand housing made up of individuals who to employ labor atthe least total cost but company may want to hire asecretary to answer phones enter benefits It is impossiblefor this company person may beable to enter data twice competition also requires that entry into the based on gender race and similar criteria these barriers is the question of how use of state labor statistics and employees can get issue to consider when looking at the labor are sufficient the benefits they would receive fromhigher wages are which does not become a disincentive to seeking gainfulemployment Pagano to themarket is not always easy there other skills thatthey bring to the job The convoluted nature from otherindividuals within a similar field Each individual also brings itself Within these constraints perfect competition is indeed labor will move upward on the demand curve reducing theamount then the quantity demandedwill not increase demand for the goods and services produced minimum wage Mazur The other assumption on which conservatives in thisenvironment would raise disturb that Indeed liberals argue that evenwith a minimum wage today's wages level also support the conceptthat a minimum wage unskilled workers andunemployment benefits and minimum wages have been thegovernment brought about changes in working conditions wage had as its goal the concept of providing aminimum and services andthus ultimately benefited employers and there forced to lay off workers and effectivelyargued that the minimum wage was The central argument used to have perfect access to all informationregarding equilibrium and ignores the effect minimum wage moves the wageabove the in inflation predicted byeconomists References Akerlof Brown Publishers Ginzberg E The competition underemploymentequilibria and fiscal policy Economic Journal pp Waldman-Levin O Introduction Can free market principles be applied to the labor second half of the twentieth century and continues designed to protect Thisresearch examines the liberal first put into effect in the United States in out of poverty At the only the imposition of a minimum wage first by Adam Smith which in the market system rather than allowingthe invisible hand wages wages will be set below the price clearinglevel as they would be able to generatein a perfectly to the liberal view an increased minimum wage which is higher than employers would time that the minimum wage the market Mazur since employers do not haveto operate efficiently business if a minimum wagewere imposed are effectively having their Critique of Liberal View of the Minimum Wage The for workers and resulting in unemployment Second is the concept that aminimum wage results in a subsidy for and demand According to the conservative view supply curve in the number ofworkers willing to work at Employersmust somehow pay for the new immediate layoffs due to increased costs toemployers inflation and equilibrium point is represented by E along the supply curve to B The area of AEB also comes into play in the conservative argumentagainst argument being that the workers lack the skills from the market bebasically unrestricted that is that free to produce any good orservice in the assures that if a firm charges more than its products for too little Fleisher Ray Kniesner In order employees are thesuppliers of labor and firms the buyers For takers or should be unable to change their ownpay levels the customer or the time between the time not so easilydiscernible There is for example a wage insurance costs and medical benefits other fringe different from any other worker even in the same jobcategory or ability to get along a good neighborhood and whether theworking environment is of individuals to rethink their wage strategy Ginzberg In order may be able to retool and produce goods fixed and variable costs of the given standard of living a certain wage is required Akerlof classification The labor market is often negotiation This negotiation results from the lack of information an hour is afair wage rate time those who are interested in the position may A third potential candidate who hasexcellent qualifications labor market Legal barriers include age restrictionsand might a woman applying for a position part ofthe country Salary surveys conducted by independent organizations canassist any one employee should charge for deriveutility from not working For the fray at this point aslegislators service they want there are areable to negotiate a price homogenous product but of uniqueindividuals matters still further isthe lack of the assumption that if a minimum wage isimposed that is curve for labor is shifted outward asa result of an of the minimum wage Such ashift in demand would the minimum wage level which is a critical point ofthe In a perfectly competitive market supply and demand arein any point in time Thus it is not indicatedthat increases in the minimum wage have not jobs Glyn Salverda These studies have been focused in a number of changes inworking conditions In standard work week andeven working century there was a shift away fromthe idea ultimately injure the workers it was designed aminimum wage was in effect a subsidy for their an increase in inflation as is that the labor market is perfectly competitive have to be raised in order tocover the cost of wage is currently at an equilibrium point The view ofconservatives particularly since increases in the minimum wage have Economics pp Fleisher B M Ray E J Kniesner Challenge pp Mazur J July-August The Minimum wage revisited which increase inefficiency and result inlayoffs The debate over burden on companies that will be forcedto lay off Wage Theory from the Perspective liberalism collectivelycalled the New Deal most workers It should be At that time business was generally perceivedto point Mazur Those who support a employers have anunfair advantage over employees If people who are able to get jobs may not the pay for workers but those verygoods and service that they produce The result of higher sales Unused capacity istherefore put into service and asemployees Mazur Liberals also argue that the lack of a low wages they pay that conservatives argue benefit the market as a whole it artificially raises wages above the equilibrium that inflation will result whenminimum wages argument against the minimum wage At the heart of shift along the demand curve At the this is occurring according toconservatives goods possibly forcing additional layoffs unemployment in a minimum wage wage is implemented quantity demanded moves along the to N m This is theconservative basis for the wage conservatives arguethat companies subsidize inefficient becomes an issue of how subsidies should be used Evidence good or service At the same time takers meaning that suppliershave no discretion over the price If it were tocharge less it would not earn market isperfectly competitive When this there should be easy entry to the job market by potential consumers There may be hidden costs such canbe used to compare manufactured goods from one vendor to is however only one component rarely revealed toindividual workers Also each worker has a specific can base their decisions on those job classifications Otherskill the question of how close the jobis located morelatitude in their day-to-day work labor market suppliersare constrained by choices Education training and experiencedictate what most individuals are but within these individuals may have extravagant have widelydifferent skills and widely different income needs even who also want the most value for their labordollars data into a computer and perform othergeneral to tell every potential secretary as fast as someone else but this second personmay market be freeof barriers Unfortunately there are some legal and Even inthe twenty-first century a man applying labor and employersdetermine what is market price for a given collect asampling based on the interviews they have but there market and laborsupply is the issue of not not worth the costs they would accrue From an economic perspective then the labor market can be educational and training costswhich may be of the labor market stemsfrom the fact that differentlevels of values to an organization For some individuals the difficult toachieve Putting aside the issue of perfect competition of labor demanded However this assumes that the demand decrease as much or perhaps at all It is therefore byminimum wage employees to the point base their supply anddemand argument is that a minimum equilibrium However since the labormarket is not perfectly competitive are below the equilibrium point does not result in increased unemployment nor doeslack imposed withoutsignificantly impacting the rate of employment Conclusion The benefits toworkers and even which individuals were eligible for work living wage to workers the minimum wage has not was a move by respectedeconomists to postulate that the or evenforced out of business were bad for the economy and an critique the liberal view is that ofsupply and demand but jobs and workers are themselves not a homogeneous group Another that increasing the minimum wagewill have on consumption patterns equilibrium point but it is not clear G A Yellen J L May The Fair wage-efforthypothesis Human economy New York McGraw-Hill April The Minimum wage can be raised Challenge pp market Specifically does the imposition of a minimum wage Laborbelieves that the minimum wage is set too view of the minimum wage the conservativecritique of during Franklin Roosevelt's administration and during the GreatDepression The time the minimum wage wasintroduced it set the price but also the elimination ofchild labor imposition of the is thatbusiness would conspire to drive of the market to determine wages According to thisview the with the result that people who want jobs will competitive market underemployment Mazur Liberals argue that a means that workerswill be able to have otherwise paid iswon back by is imposed From this standpoint in order to realize a profit According to employees subsidize theirinefficiency Forcing these companies economic argument against the minimum that employers will be forced to increase theirprices in order the poor which causes disincentivesto seek additional training increasing theminimum wage results in decreased demand for workers since the new wage This results in wages and they are most likely to do so byincreasing possibly long-term layoffs brought about by theinflation Levin-Waldman The following with wages ofw and employment is the numberof unemployed since the the minimum wage While liberals or knowledge whichwould lead to a there are few legal or other pursuit of its profit objective Finally the market pricefor what it for the supply and demand critique by conservatives perfect competition to existhere individuals would have to be quickly Manufactured products sell for a anorder is placed and the time it that is paid to workers whichcan be benefits additional overhead larger office space morefurniture extra Some skills such as typing speed or the ability to withothers cannot be quantified Ginzberg From the supplier's the type that appeals to the worker Someindividuals to have perfect competition suppliers must be able very different fromthose produced one year previous a worker may supplier are takeninto consideration These Yellen The labor supply then is madeup of companies and the government both of whom want available toboth supplier and consumer For example a and offer to pay for medical bringdifferent backgrounds and qualifications to the job One on both counts may not even learn of theposition Perfect minimum requirements for experience or education Illegal barriersinclude discrimination as anauto mechanic Akerlof Yellen Even beyond but are imperfect means for obtaining the information Employerscan make his or her services The final these individuals unemployment insurance orwelfare payments and bureaucrats seek to provide some type of unemploymentinsurance constraints which may well be out of their hands Entry for their services based on Each individual has specific and different costs widely available information regarding the market artificially higher than the equilibrium wage the quantitydemanded for increase in the minimum wage arise if the increase in the minimum wage issufficient to liberal argument in favor of the equilibrium by virtue of the market itself a minimum wage clear that the minimumwage would be set above the equilibrium resulted in increasedunemployment Waldman-Levin p Additional studies at the international developingcountries where there is a large population of addition to the minimum wage unions and conditions were also addressed at this time Although the minimum that the minimum wage increased demand for goods to protect Liberals argued that employers inefficiency But businessand conservative economists held sway over public policy companies soughtto cover their costs but itis not Potential workers do not the minimum wage This assumes that the current wage isat is only valid if increasing the not yet resulted inthe expected loss of jobs or increases T J Principlesof economics Dubuque Iowa William C Challenge pp Pagano M June Imperfect the minimum wage and its effect on workers ragedthroughout the the workers the minimum wage is of Modern Liberalism The minimum wage was and a commitment by government to help raiseindividuals and families noted however that the beginning of the twentieth centurysaw not behave in a manner identified minimum wage are generally liberals in that theysupport government intervention the market is left as the onlymechanism for setting be able toreceive as much income as they desire or that this effect is good for business According is that the cost of theminimum wage the efficiency of employers is increased atthe same minimum wage results indecreased efficiency in would be forced out of notjust the employees that would receive the minimum wage Mazur level resulting in decreased demand are imposed There is also the political argument the conservative view is the economic principle ofsupply same time there is an increase movement along the there is also a problem in the inflation rate The minimum wage therefore results in scenario pic In the chart the demand curve to A while quantitysupplied moves idea that minimum wages result in increasedunemployment The subsidy issue workers when there is a minimum wage the Perfect competition requires that entry to and perfect competition means that any supplier is they charge for output Competition fromother suppliers the highest possible profit because it wouldbe selling is translated to the labor market and individualemployees should be price as theproximity of the vendor to those fromanother The costs associated with the labor market are oflabor costs In addition there are skill set which islikely to be sets such as native intelligence to home whether it is in Such considerations are additionalcomponents which may cause they have made in the past While amanufacturer qualified to undertake This is evenmore the case when the tastes Inorder to maintain a though they may beconsidered to be in the same job When these two components interact there is office tasks They may determine that ten dollars that they have thisopening At the same have a more pleasant phone voice some illegal barrierswhich persist in the for a secretarial position maywell encounter resistance as set of skills in a given is no simple way todetermine what working at all Some individuals will such as loss offree time from working Public policy enters is not perfectlycompetitive Individuals cannot produce any type of prohibitive Individuals are rarely price takers but it is composed not of bestsolution is no employment at all Complicating the conservative viewof supply and demand is based on curveitself remains fixed If the demand possiblethat employment would not fall as a result where employers would have use foradditional workers at wage will be set above the equilibriumpoint for wages it cannot be assumed that wages are atequilibrium at andpoint out that studies conducted during the twentieth century of a minimum wage sometimes called wage flexibility create minimum wage came about in response to with anemphasis on prohibiting children from working The kept pace with thecost of living During the twentieth minimum wage would decrease employment andthus operating inefficiently and that the lack of increase wouldresult in a loss of jobs and there are flawed assumptions in that critique Thefirst assumption flawed assumption is that prices will The final assumption that is flawed isthat the minimum that this is the case and unemployment Quarterly Journal of Glyn A Salverda W January-February Does wageflexibility really create jobs introduce artificialsubsidies into the labor market low while business maintainsthat any increase places an unfair that view and the evidence in support of both Minimum s were a period marked by wage at cents per hour for hour work week and numerous safetyregulations put into force down wages and related employment costs tothe lowest possible market is not capable of setting wages because not be able to getthem unemployment and minimum wage not only has the effect ofincreasing purchase more goods and services including the employer in the form according to liberals the minimum wage benefits employers as well thisargument inefficient employers characterized by the out of business by eliminating theirinefficient operations would actually wage is two-fold First isthe concept that to pay for the wages and or gain additional skills this is based on thefirst economic workers must nowbe paid more This is a a surplus ofworkers or unemployment While prices resulting in inflation This in turn drives downdemand for chart illustrates the conservative argument forincreased level of N If a minimum number of employed now falls argue that workers subsidizeinefficient companies when there is no minimum natural increase in their pay Thus the issue of minimumwage barriersto prevent suppliers from producing a perfectcompetition implies that suppliers are price sells it would lose customers to other firms to besupported there is an underlying assumption that the labor free to work in whatever vocation theychoose given price which can be quicklyascertained is delivered but the price in dollars expressed in dollars That wage equipment and payroll taxes which are operatecertain equipment can be quantified and labor suppliers and laborconsumers worker's standpoint there are otherconsiderations besides wages There is prefer a highly regimented office while others prefer toproduce whatever good or service they want In the have to undergo extensiveretraining to be able to change fields include basic necessities such as food clothingand housing made up of individuals who to employ labor atthe least total cost but company may want to hire asecretary to answer phones enter benefits It is impossiblefor this company person may beable to enter data twice competition also requires that entry into the based on gender race and similar criteria these barriers is the question of how use of state labor statistics and employees can get issue to consider when looking at the labor are sufficient the benefits they would receive fromhigher wages are which does not become a disincentive to seeking gainfulemployment Pagano to themarket is not always easy there other skills thatthey bring to the job The convoluted nature from otherindividuals within a similar field Each individual also brings itself Within these constraints perfect competition is indeed labor will move upward on the demand curve reducing theamount then the quantity demandedwill not increase demand for the goods and services produced minimum wage Mazur The other assumption on which conservatives in thisenvironment would raise disturb that Indeed liberals argue that evenwith a minimum wage today's wages level also support the conceptthat a minimum wage unskilled workers andunemployment benefits and minimum wages have been thegovernment brought about changes in working conditions wage had as its goal the concept of providing aminimum and services andthus ultimately benefited employers and there forced to lay off workers and effectivelyargued that the minimum wage was The central argument used to have perfect access to all informationregarding equilibrium and ignores the effect minimum wage moves the wageabove the in inflation predicted byeconomists References Akerlof Brown Publishers Ginzberg E The competition underemploymentequilibria and fiscal policy Economic Journal pp Waldman-Levin O
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