The Minimum Wage: Popular Economyths

Please select only 1 of the following options and answer each of the questions related to that option. Your responses should be thorough and well supported. You are encouraged to use our textbook and the online book for this class, which is called Popular Economyths

A good, well-reasoned, detailed answer should be at least 1.5 to 2 pages (total) in length (and please do NOT rewrite the questions). You need to answer each of the questions for the option you select.

OPTION 1 – The Minimum Wage

Since 2009, the national minimum wage has been $7.25 per hour for most occupations in the private sector. Many of those who support an increase in the minimum wage believe this is one way the government could possibly reduce poverty, while its opponents believe that it creates unemployment and hurts low-skilled workers. The following items address the idea of raising the minimum wage from the current federal minimum of $7.25 per hour.

1) Describe who the suppliers and demanders are in the labor market. Is a government-mandated minimum wage a price floor or ceiling? Discuss the effect of a minimum wage law from a supply and demand standpoint, making sure to address the concept of surplus or shortage, and specify what that shortage or surplus is most commonly called in economic terms.

2) Raising the minimum wage will also affect the labor costs of businesses. What is going to happen to the prices these businesses charge for their products? And who is going to be most affected by these price changes, those with low incomes or those with high incomes? 

3) Discuss any potential changes in the incentives for low-skilled workers – those who keep their jobs and their hours – to increase their human capital when the minimum wage increases. What about those who lose their jobs or never get hired? Discuss the incentives for employers to substitute capital inputs (technology and automation) for labor.

4) What might be an unintended impact on government spending on entitlements such as welfare, food stamps, and unemployment compensation because of the changes in the minimum wage and its impact on unemployment and underemployment?

5) Do advocates of a minimum wage law believe that workers should be paid based on their output (i.e., performance) or on their level of need? What do opponents of the minimum wage law believe workers’ wages should be based on? Which one is sustainable and why? 

For the sake of comparison, how should students be graded in class, based on their performance or level of need?

6) Advocates of a minimum wage often believe that employers would “exploit” or “take advantage” of their workers if there were no minimum wage. How would you know if employers are “taking advantage” of their workers if there were no minimum wage? What simple thing could the employee do if they believed they were being exploited?

7) What percentage of American workers get paid above minimum wage? In general, why do such workers get paid more than the government-mandated minimum wage if employers are supposedly so greedy? 

8) Compare and contrast some of the information contained in the three videos:

Obama: “Raise Minimum Wage to $9 an Hour” – SOTU 2013 

How the Minimum Wage Creates Unemployment – Note: this video uses an example of a $5 minimum wage as an illustration only. The same exact point could be made with a minimum wage of $7.25, $9, $12.37, or any other amount, so please do not get hung up on the $5 amount. The point is whether or not the government ought to dictate the wages of a private transaction between a willing employee and employer.

We the Internet TV: Pledge for $15

Describe the main points of each video. Which one or two videos do you agree with more from an economic perspective and why? Be specific!

9) Based on your previous 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? You need to give a thorough reason for your answer. Who should get to decide how much a worker gets paid, the worker and their employer or a politician? WHY?

OPTION 2 – Taxes

It has been said that nothing in life is guaranteed except for death and taxes. The next questions ask about the three tax structures as well as rate rates.

1) A lot of students say that some people pay “more (or less) in taxes” than others, but they often confuse tax rates (percentages) with the amount of tax paid (in dollars). Be sure to answer questions in this option with references to the differences between taxes paid in dollars versus percentages.

Please state whether you prefer a progressive, regressive, or flat (proportional) tax system and WHY. Is your preference more in accordance with the concept of equality of opportunity (which is equal treatment) or equality of outcome (which is unequal treatment)? BE SPECIFIC. Which tax system incentivizes taxpayers to earn more money and which structure disincentivizes taxpayers to work harder and earn more money. 

2) Please write about marginal tax rates and whether you believe they need to be changed in general. More specifically,

A) If you believe in a flat tax rate system, should income tax rates be raised or lowered? 

B) If, however, you think a progressive tax rate is best: 

i) should taxes on low-income earners be raised or lowered?

ii) should taxes on average-income earners be raised or lowered?

iii) should taxes on high-income earners be raised or lowered?

C) If, however, you think a regressive tax rate is best: 

i) should taxes on low-income earners be raised or lowered?

ii) should taxes on average-income earners be raised or lowered?

iii) should taxes on high-income earners be raised or lowered?

Regardless of which you chose (A, B, or C) be sure to give your reasons WHY you feel the way that you do.

3) Please explain HOW the tax rate changes (the increase or decrease you advocated for in Questions #2 above) will affect each of the following:

a)  economic growth: job creation, investment, incentives to work more, and tax avoidance

b)  the budget: the difference between tax revenue and government spending

   c) economic “fairness” 

Your answer needs to have a discussion related to the Laffer Curve, especially with respect to the budget (and to government revenue in particular). In addition, please give your definition of economic “fairness” and WHY you believe that. 

4) Please watch the following two videos:

Robert Reich: Why Taxes Have to be Raised on the Rich

Is America’s Tax System Fair?

Describe the main points of each video in detail. Which video do you agree with more? Please describe WHY. Which video recommends treating people equally and which one does not? 

5) Please read the following articles:

What You Don’t Know About the Top One Percent

Tax Foundation: Latest Federal Income Tax Data

Describe the main points of each article in detail.

Based upon the two articles: By income percentile group, who doesn’t pay their “fair share” of taxes and who pays more than their “fair share” in your opinion? How do you arrive at that opinion?