Gov/Econ- Vinson

Unit Four

Labor, Employment and Wages

Read the Chapter 9, section1 handout and then answer the following questions:

1. Define the following:

wage rate Measure the basic remuneration per time unit or unit of output

derived demand Demand for a factor of production or intermediate good that occurs
as a result of the demand for another intermediate or final good

minimum wage The lowest wage permitted by law or by a special agreement

non-money benefits Benefits that include what people are doing in their jobs, who their
coworkers are, where they work, how many hours a week they
work, and how much vacation time they receive

real wage Wages adjusted for inflation, or, equivalently, wages in terms of the
amount of goods and services that can be bought

Consumer Price Index (CPI) An index of the variation in prices paid by typical consumers for
retail goods and other items

2. How is the equilibrium wage determined for a particular job?

The equilibrium wage is determined at which the quantity demanded of labor equals the quantity
supplied of labor.

3. Keeping your response to #2 in mind, tell me why some jobs pay significantly more than others:

Some jobs pay significantly more than others because wage rates can differ due to the supply of
different types of labor if it’s not the same. Wage rates can also differ because the demand for
different types of labor is not the same.

4. What happens if the demand for labor exceeds the supply of workers in a particular labor market?
What if the supply exceeds the demand? (Two-part answer!)

If the demand for labor exceeds the supply of workers the minimum wage is raised

If the supply exceeds the demand the minimum wage is lowered.

5. What do you think might be the most important non-money benefit(s) of a job, and why? This answer
will vary based on your particular values/desires.
 Personally I believe what I am doing in the job matters along with the co-workers. I find it hard to
work with others who aren’t on the same page as me, are distracting, or I don’t get along with them.
This is also important because personally I think going to work you should have a drive to go and to
have fun without it being boring. With poor co-workers this will make things harder, so co-workers
are the most important non-money benefits.

6. Here’s a scenario for you: In 2018, Freddy made $17/hr and the CPI was 183. By 2020 he was
earning $19/hr and the CPI had risen to 218. Provide the following information:

Freddy’s money wage in 2018 $17/hr

Freddy’s real wage in 2018 183
Freddy’s money wage in 2020 $19
Freddy’s real wage in 2020 218

7. Was Freddy better off financially in 2018 or 2020? Why is this the case?

Freddy was better off financially in 2020 because his money wage increased along with his real
wage.

*** For the remaining questions refer to the website linked HERE:

8. Choose two (2) of the most convincing arguments in favor of increasing the minimum wage and tell
me why you find each one compelling:

Raising the minimum wage would lead to a healthier population and prevent premature deaths. I
am in favor of this because according to the argument, there was a study where they raised the
minimum wage to $13 an hour in 2017 and this would “significantly benefit health and well-being.”
The study found that those earning a higher minimum wage would have enough to eat, be more
likely to exercise, less likely to smoke, suffer from fewer emotional and psychological problems,
and even prevent 389 premature deaths a year as well.
Raising the minimum wage would increase school attendance and decrease high school drop-out
rates. A 2014 study found that raising the Californian minimum wage to $13 an hour would
increase the incomes of 7.5 million families, meaning fewer would live in poverty. Teens who live in
poverty are twice as likely to miss three or more days of school per month compared to those who
do not. Raising the minimum wage would lift families out of poverty and would mean children
would miss fewer school days.

9. Choose two (2) of the most convincing arguments in favor of decreasing the minimum wage and
tell me why you find each one compelling:

A minimum wage increase would hurt businesses and force companies to close. I am in favor of this
because 60% of small-business owners say that raising the minimum wage will “hurt most
small-business owners.” Also Jamie Richardson, MBA, Vice President of fast food chain White
 Castle, said that the company would be forced to close almost half its stores and let go thousands of
workers if the federal minimum wage were raised to $15.
Raising the minimum wage would not reduce crime. According to a 2013 study by Boston College
economists, increasing the minimum wage leads to reduced employment which leads to an
increase in thefts, drug sales, and violent crime. Their results indicate that “crime will increase by
1.9 percentage points among 14-30 year-olds as the minimum wage increases.”

10. Having looked through the various arguments for and against raising the minimum wage, tell me why
you agree or disagree with California’s plan to raise the minimum wage as outlined in the chart
below:

I disagree with California’s plans to raise the minimum wage because doing so would destroy small
businesses because they wouldn’t be able to afford to pay off their workers. If a small business is
already struggling to pay off minimum wage how are they going to be able to pay off workers if it’s
increased.

Schedule for California Minimum Wage rate 2017-2023.

Date Minimum Wage for Employers Minimum Wage for Employers

with 25 Employees or Less with 26 Employees or More

January 1, 2017 $10.00/hour $10.50/hour

January 1, 2018 $10.50/hour $11.00/hour

January 1, 2019 $11.00/hour $12.00/hour

January 1, 2020 $12.00/hour $13.00/hour

January 1, 2021 $13.00/hour $14.00/hour

January 1, 2022 $14.00/hour $15.00/hour

January 1, 2023 $15.00/hour