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Unintended consequences of raising minimum wage

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Minimum Wage Discussion

The national minimum wage is $7.25 per hour for most occupations in the private sector. Over the past several years, support for an increase in the minimum wage has come from a wide variety of sources. Many of those who support an increase in the minimum wage believe this is one way the government should exercise its social responsibility in an attempt to reduce poverty. The following items address the idea of raising the minimum wage from the current federal minimum of $7.25 per hour.

1. Minimum wage is a price floor. In a paragraph, discuss in how an increase in minimum way will affect the quantity demanded and supplied of labor. Draw the supply and demand of labor using hypothetical numbers to illustrate your answer. Calculate the surplus resulting from the minimum wage increase (VC1, EQS2).

2. Discuss the unintended consequences of raising minimum wage, as it relates to potential changes in the incentives for low skilled workers to increase their human capital, and for employers to substitute inputs (technology and automation for labor (VC1, EQS2).

3. Discuss the impact of increased minimum wage on prices of the products produced by the workers working at or near minimum wage, and the overall impact on consumer purchasing. (VC1, EQS3)

4. What will be the impact on government spending on entitlement spending such as welfare, food stamps, and unemployment compensation in light of the fact that changes in the minimum wage can create changes in unemployment and underemployment? In 200 words, explain your answer (VC3, EQS5)

5. Explain how the change in minimum wage will affect America's competitiveness in the Global economy. (VC3, EQS6)

Reference no: EM132506613

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