ECON2302 Principles of Microeconomics - Since 2009, the national minimum

ECON2302  Principles of Microeconomics

OPTION 1

Since 2009, the national minimum wage has been $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, including the Obama administration. 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, so discuss an increase in the minimum wage from a supply and demand standpoint, making sure to address the concept of surplus or shortage with respect to the quantity of labor supplied and the quantity of labor demanded that is generated by this price floor.

2) What will be the impact on the prices of the products produced by workers working at or near the minimum wage level, and how will this affect overall consumer purchasing?

3) Discuss any potential changes in the incentives for low-skilled workers to increase their human capital, and for employers to substitute capital inputs (technology and automation) for labor.

4) What might be the impact on government spending on entitlements 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?

 5) Compare and contrast some of the information contained in the two videos:

 Obama: "Raise Minimum Wage to $9 an Hour" - SOTU 2013

How the Minimum Wage Creates Unemployment

Which do you agree with more from an economic perspective and why? Be specific!

6) Do advocates of a minimum wage law believe that workers should be paid based on their output (or performance) or on their level of need?

7) How do you know if employers are "taking advantage of" their workers if there were no minimum wage?

8) Based on your responses, do you believe that the minimum wage should be raised, lowered, remain as it currently is, or be altogether eliminated? If you think there should be a minimum wage, how would you arrive at the specific wage?

 Explain your answer, and make sure to address any social responsibility the government should have regarding the well-being of its citizens with respect to the setting of wages in the private sector.

OPTION 2

There has been much talk in recent time about outsourcing and “sweatshops.” Outsourcing is usually defined as occurring when a company chooses to export some of its production to foreign countries. Jobs in which foreign workers work in “sub-standard” conditions and are paid lower wages (than their American counterparts) are typically referred to as “sweatshops.”

1. What are some of the economic reasons why some firms choose to relocate some of their productive facilities to foreign countries?

2. With regards to low- and high-skill laborers, which domestic (American) workers may gain from outsourcing, and which domestic workers might lose? Why is this the case?

3. With respect to the types of products produced by companies that outsource, what effect may outsourcing have on domestic prices of these products?

4. If the US government wanted to reduce outsourcing, what changes in policy could it make to do so?

5. Please watch the following 2 videos regarding “sweatshops.”

 Inside Look at Apple’s Chinese Sweatshops!

John Stossel - Sweatshops

After watching the videos, please tell me if “sweatshops” are a good or bad thing for foreign workers? WHY?