Sunday, 21 October 2012

New York City's Minimum Wage Clash

 







According to Angela Young (2012), in INTERNATIONAL BUSINESS TIMES, a ballot was arranged to overrule Mayor Michael Bloomberg’s nix to impose a price floor, or a minimum wage where employers will have to increase their employee’s pay up to a certain extent. There were arguements and questions on how would this affect the nation’s economy and whether it will be good or bad for both employers and also the employees.


A wage floor is meant to benifit the people in the market, and may also benifit the economy in some ways. Workers with higher pay means more power for affordability, implying that ceteris paribus applies for the price of goods and services, and that bit of extra salary may even help them to qualify for a loan to buy a small car or home. A higher wage also gives employees extra employee provident fund, which will lead to more saving for their retirement.

A wage floor is a government imposition that limits the minimum wage to a fixed amount above the equilibrium wage. A wage floor below the equilibrium point of the supply of labor and the demand for labor graph would carry no effect as there will be no pressure on the market, and the market would still follow the optimum demand and supply for labor at the equilibrium point, so a wage floor would only affect the market above the equilibrium point. A wage rate at the equilibrium point would balance the demand and supply of labor and there will be no shortage or surplus of labors.

The quantity supplied for labor is determined by the wage rate. So when the wage rate is low, the quantity supplied for labor would decrease as they might turn to the government sector for higher paid jobs, but when the wage rate is high, quantity supply of labor would increase. Quantity demanded for labor would increase when wage rates are low as employers are able to afford more workers and quantity demanded for labor would decrease when the wage rate is high.

As argued in the article, that nothing is free and there will be trade offs, companies will have to make up for the increase in wages and workers may be laid off, benifits may decrease and other things may have to be forgone, and instead of benifiting the workers, they may end up worse when costs rises, and they may have to contra the extra costs with the extra wage and in the worst case scenario, causing a lot of unempoyments. For the low-skilled labors, they may end up losing their jobs having no income compared to the previous low income. Unemployed workers may also bare costs to search for jobs resulting from the minimum wage system. As illustrated in the graph below, at a wage rate above the equilibrium point, the quantity supplied for labors exceed the quantity demanded for labors and this causes a surplus in workers. The demand for labor shows the degree of employment and the surplus of labor is unemployed. 



The demand for labor curve shows the marginal social benifit curve and the supply for labor curve shows marginal social cost curve. In a market under the state of equilibrium, the marginal social benifit curve equals the marginal social cost curve and the total surplus of the firm and workers are equal and maximised, therefore the market is efficient. When a minimum wage is imposed, the wage rate bar is increased, a surplus of labor is created and it leads to unemployment. In the same time, the marginal social benifit of labor is more than the marginal social cost and the minimum wage line causes the firm’s surplus to shrink and a chain reaction will apply to the worker’s surplus, and a deadweight loss will also be created as the employment of workers is less than the efficient amount which leaves a potential loss gap. This potential loss gap will represent the losses such as the costs to search for jobs. The deadweight loss and the potential loss added together will be the total loss that the workers will suffer. All this creates an ineficient market. Therefore, New York may face a potential inefficient market and the citizens may suffer. The graph below illustrates how the minimum wage imposition may affect the city and its people.




Assistant professor Jake Rosenfeld of the University of Washington also discussed in the article about inequality such as the problems for employment. The minimum wage is unfair from all sides. It is not a voluntary exchange. Discrimination may also occur in the fight for a job. Who will gain from the minimum wage besides the employee’s whose original pay is below the minimum wage’s pay. Even so, those employees may have to work harder with less man power in the company. The unemployed, on the other hand, will have increased costs to search for jobs, the employers may have to cut back on investments and other business plans to cover for the employees’ wages plus the opportunity cost for having less man power in the company, and as for the nation’s economy, due to the reason that the nation may have to support welfares and social aids for the unemployed, and due to the decreased investments from companies, the economy may possibly be negatively affected.

( Author: Student ID - 0312718 )
 

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