Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 4: Problem 9

An article in the Wall Street Journal noted that a study by the U.S. Congressional Budget Office "estimated raising the minimum wage to \(\$ 10.10\) an hour would reduce U.S. employment by 500,000 but lift 900,000 Americans out of poverty." Why might raising the minimum wage reduce employment? How would it raise some people out of poverty? What effect might these estimates have on a normative analysis of the minimum wage?

Short Answer

Expert verified
Raising the minimum wage might reduce employment because it increases the cost of labor for employers, possibly leading them to reduce their workforce to balance out the increased costs. On the other hand, it could lift people out of poverty by increasing their income levels, thus improving their standard of living. These estimates would have a significant impact on a normative analysis of the minimum wage, depending on the weightage given to either reducing poverty or maintaining employment levels.

Step by step solution

01

Understanding effect of raising minimum wage on employment

Raising the minimum wage increases the cost of labor for employers. If the new minimum wage is higher than the value an employer gets from an employee's work, the employer might decide to reduce the number of employees to balance out the increased cost, leading to a reduction in employment. This can be particularly true for small businesses or sectors where profit margins are thin.
02

Understanding effect of raising minimum wage on poverty

An increase in minimum wage raises the income levels of low-wage workers. This means they receive more money for their work which can potentially lift them out of poverty, provided they keep their jobs. More money allows them to afford better housing, food, education, and other essentials, improving their standard of living.
03

Understanding normative analysis

Normative analysis in economics involves value judgments about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal. These judgements can be influenced by various factors, including these estimates. For example, if one values reducing poverty over potential job loss, they might see this policy as beneficial.
04

Considering the effect of these estimates on a normative analysis of the minimum wage

These estimates could significantly affect a normative analysis of the minimum wage. If a policy-maker or analyst places a higher value on lifting people out of poverty, they might see the policy as a success, despite the potential job loss. However, if they value employment status more, they might see the policy as costly. Therefore, the impact of these estimates on normative analysis depends on one's individual values and judgments.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Do producers tend to favor price floors or price ceilings? Briefly explain.

What is the tragedy of the commons? How can it be avoided?

What is free riding? How is free riding related to the need for public goods?

University towns with major football programs experience an increase in demand for hotel rooms during home football weekends. Hotels respond to the increase in demand by increasing the prices they charge for rooms. Periodically, there is an outcry against the higher prices, accompanied by accusations of "price gouging." a. Draw a demand and supply graph of the market for hotel rooms in Boostertown for weekends with home football games and another graph for weekends without home football games. If the Boostertown city council passes a law stating that prices for rooms are not allowed to rise, what would happen to the market for hotel rooms during home football game weekends? Show your answer on your graph. b. If the prices of hotel rooms are not allowed to increase, what will be the effect on out-of-town football fans? c. How might the city council's law affect the supply of hotel rooms over time? Briefly explain. d. University towns are not the only places that face peak and nonpeak "seasons." Can you think of other locations that face a large increase in demand for hotel rooms during particular times of the year? Why do we typically not see laws limiting the prices hotels can charge during peak seasons?

A columnist for the Wall Street Journal argued that highspeed Internet connections are now a public good: "We're going to have to transition to the building of public infrastructure and away from the revolution being the domain of private enterprise. It's not enough for Google to roll out high- speed fiber to a handful of cities." a. In what ways is the infrastructure for high-speed Internet connections like automobile highways? In what ways is it different from highways? b. As of 2017 , private firms have constructed most of the infrastructure for high-speed Internet connections,while governments have constructed most highways. Is it still possible that the infrastructure for high-speed Internet connections is a public good despite this fact? Briefly explain. c. Do you agree with the columnist that we should think of the infrastructure for high-speed Internet connections as being like a public good? Is there any information you would need to know before deciding?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free