Myth and Measurement The New Economics of the Minimum Wage

Questions: 1. Analyze what happens when a higher minimum wage is enacted (raising a price floor on the price of labor). Will the number of workers hired change? Why? What might be an unintended consequence of a higher minimum wage law designed to help low income workers? 2. Analyze what happens when the price of rent is regulated so that prices are kept artificially low (a price ceiling). What will happen to the availability of apartments Why What might be an unintended consequence of a rent control? Answers: 1. A minimum wage is considered as the lowest compensation that employers may legally pay to employees. Similarly, employees may not sell their labor below the price floor. A price floor is a legal minimum in which the government does not facilitate the price of a good or service to decrease below the floor. The minimum wage has increased impetus among policy makers as a method to lessen rising wage as well as disparity of income. However, higher minimum wage or increasing price floor on the price of labor leads to job loss and probable magnitude of those losses. It has been predicted by the standard model of competitive labor markets that higher minimum wage is likely to lead to loss of job among low-skilled employees (Meer and West 2015). A binding minimum wage that is set higher as compared to the competitive equilibrium wage decreases employment for two purposes. Firstly, the employers will substitute away from the low-skilled manual labor that is comparatively costly at present towards other inputs that includes capital. Both product and labor demand will be reduced due to higher minimum wage. The increase in minimum wage is likely to reduce the hire of workers and they will also fire present workers. In other words, most of the companies move towards computerization, at least partly due to increase in minimum wages. Almost all the workers have diverse level of skills and as a result, higher minimum wage is likely to change the number of workers hired as employers will hire less number of low-skilled employees (Card and Krueger 2015). It is often understandably believed by the lawmakers that they are in the business to solve issues. Legislators often think that putting more money in the pockets of the poor is likely to help their families. However, legislation will not rescind the laws of economics. According to research, mandated hikes in wages imposes real costs of economics and these costs are principally borne by the very individual legislators are trying to help. However, it leads to an unfortunate attempt to increase minimum wages as it depends mostly on emotion rather than economic reality. Cohorts mostly depict the typical minimum wage earner as a solo parent who is struggling to place food on the table. A vast majority of individuals started their life with a minimum wage job. It provided entry to the market in order to gain helpful skills as well as knowledge that facilitated them to move up the ladder. However, it consists of a small subsection of the labor force. According to Card and Krueger (2016), p utting more money in the pockets of the poor did not help the poor however; it cost them their jobs. The higher minimum wage also had a negative impact on the minority employment mostly due to differences in level of skills and education. 2. The government control of the rents of houses as well as apartments is an exceptional form of price control. Rent control is considered as a law putting a maximum price or a rent on what property owners may charge tenants. If it is to have any impact, the level of rent requires to be put at a rate below that which would otherwise be triumphed. However, if rents are instituted lesser as compared to the level of equilibrium, the quantity demanded will essentially be more than the amount supplied. On the other hand, rent control will lead to a shortage of house spaces. In a competitive market, if the quantity of a commodity demanded is more than the amount supplied. The large demand in the non-controlled segment of the market is caused by rent control that in turn increases price in the segment. In the case of price ceilings, rent control leads to shortages as well as decrease in the quality of the commodity. The quantity of apartments for rents will be far less than otherwise. Exist ing unit off unit fare poorly under rent control (Ambrose, Eichholtz and Lindenthal 2013). Limited growth of rent dampens future investment in housing and it also inflates rents for unregulated units as well as depresses residents who secure units of rent-controlled. The unintended as well as unwanted consequences of endeavors to put into practice rent control and minimum wages are mostly uncomplicated. Rent control discloses the door to inequity due to potential tenants that cannot compete with each other by providing larger rent for an apartment. In a market that is left to its personal policies, everybody who desires an apartment at the market price gets one, and everybody who is enthusiastic to rent out an apartment at the market price gets a tenant. On the other hand, under a free and competitive market, a prejudiced property owner would have to pay for his prejudice in the form of subordinate profits. According to rent control wage law, individuals get access to lower-quality rental housing. However, property owners have weaker incentives to be conscientious about ma intenance. With price-control, individuals will be able to adjust the quality of the commodities as well as services that they are purchasing and selling. Employees have to pay for foods as well as employers that are used to offer. The rent control is considered as an effectual as well as counterproductive policy of housing. However, the law of rent control ignores the basic laws of economics that are associated with markets for housing (Kim 2015). References Ambrose, B.W., Eichholtz, P. and Lindenthal, T., 2013. House prices and fundamentals: 355 years of evidence.Journal of Money, Credit and Banking,45(2?3), pp.477-491. Card, D. and Krueger, A.B., 2015.Myth and measurement: the new economics of the minimum wage. Princeton University Press. Card, D. and Krueger, A.B., 2016. Introduction and Overview [Myth and Measurement: The New Economics of the Minimum Wage Twentieth-Anniversary Edition].Introductory Chapters. Kim, J.R., 2015. What Drives the Price-Rent Ratio in the UK Housing Market? An Unobserved Component Approach.Journal of Marketing and Management,6(2), p.74. Meer, J. and West, J., 2015. Effects of the minimum wage on employment dynamics.Journal of Human Resources.