What will be the impact on the prices of the products

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Question: 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 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:

1. Obama: "Raise Minimum Wage to $9 an Hour" - SOTU 2013 (By Wall Street Journal)

2. How the Minimum Wage Creates Unemployment (By Truth In Exile)

Which do you agree with more and why?

6) Based on your responses, do you believe that the minimum wage should be raised, lowered, remain as it currently is, or be altogether eliminated? 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."

1. Inside Look At Apple's Chinese Sweatshops! (By SocProf Jordan)

2. John Stossel - Sweatshops (By electricknight4)

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

OPTION 3: The American Recovery and Reinvestment Act of 2009 (ARRA) was passed by President Obama and Congress in response to the recession of 2007-2009. The primary components of this bill included tax cuts and increased government spending, with an emphasis on infrastructure spending such as roads and bridges. Included in the bill was a "Buy American" provision which required all manufactured goods (a few exceptions did apply) purchased with ARRA funds to be made in the United States. The intention of this provision was to increase jobs in the United States by preventing foreign companies from reaping the rewards of the new spending projects.

1. Are attempts to protect U.S. firms from foreign competition, such as the Buy American provision, good ideas? Explain.

2. Explain why some American companies might be opposed to this provision.

3. Explain whether or not you believe the Buy American provision would create jobs in the United States.

4. What do you think will be the economic consequences of a Buy American provision?

5. Do you believe the government should get involved in this aspect of private business, even when the available funds are coming from the government? If so, why? If not, why not?

Reference no: EM132049431

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