The national minimum wage is $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. 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. The minimum wage is a price floor. In a paragraph, discuss how an increase in a minimum way will affect the quantity demanded and supplied labor. Draw the supply and demand of labor using hypothetical numbers to illustrate your answer. Calculate the surplus resulting from the minimum wage increase (VC1, EQS2).
2. Discuss the unintended consequences of raising the minimum wage, as it relates to potential changes in the incentives for low skilled workers to increase their human capital, and for employers to substitute inputs (technology and automation for labor (VC1, EQS2).
4. What will be the impact on government spending on entitlement spendings 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? In 200 words, explain your answer (VC3, EQS5)