Thursday 716

 

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 9 The Real Economy in the Long Run

Chapter 28 of 36 Unemployment

Section 12 of 21

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Figure 4 - Unemployment from a Wage above the Equilibrium Level

In this labor market the wage where supply and demand balance is WE

At this equilibrium wage quantity of labor supplied and demanded meet at equilibrium point E.

If the wage is forced by a minimum wage law above the equilibrium level WE

· quantity of labor supplied rises to LS

· quantity of labor demanded falls to LD

The resulting surplus of labor, LS - LD is unemployment.

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In this chapter we discuss four explanations for long-run unemployment:

-1- frictional unemployment

-2- minimum wage laws

-3 - unions and collective bargaining

-4- efficiency wages

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-2- Minimum Wage Laws

In this section we begin to examine how structural unemployment results when the number of jobs is insufficient for the number of workers wanting jobs.

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Analysis of minimum wages is a good place to start because it helps in understanding some of the other reasons for structural unemployment.

Figure 4 illustrates fundamental minimum wage economics.

When a minimum wage law forces the wage above the level that balances supply and demand from WE up to Minimum wage it raises the quantity of labor supplied, more people want to work for the higher wage.

The quantity of labor demanded is reduced because it’s more expensive for businesses to hire.

A surplus of labor and unemployment are created because more workers are willing to work than there are jobs.

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Minimum wage laws are one reason for unemployment in an economy but they do not affect many people.

Most workers earn wages well above the legal minimum.

Minimum wage laws mostly affect the least skilled and least experienced in the labor force, including teenagers.

Their wage value is usually low and likely is below the new legal minimum wage.

It is only among these workers minimum wage laws cause unemployment.

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Figure 4 illustrates a general lesson: if the wage is set above the natural equilibrium level for any reason unemployment results.

If a worker will only create or support $10 per hour sales and the minimum wage is set at $12 per hour, the company

· will not hire anyone new whose value is less than $12 per hour

· will lay off current workers whose value is less than $12 per hour

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In following sections two other reasons wages are kept above equilibrium level are covered: unions and efficiency wages.

In the case of unions the fundamental unemployment economics are the same as in Figure 4, wage level is set above the equilibrium.

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The structural unemployment that arises from an above-equilibrium wage is different than the frictional unemployment arising from the job search process.

Unemployment during job search is not caused by the failure of wages to balance labor supply and labor demand.

When job search is the cause of unemployment, workers are searching for the jobs that best suit their tastes and skills.

When the minimum wage is arbitrarily set above the equilibrium level

· the quantity of labor supplied exceeds the quantity of labor demanded

· workers are unemployed because their productivity level is not worth the higher wages employers must pay

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Businesses must earn a certain level of profits, at least above the level can earn by instead putting investment money in the stock market.

If competing businesses all start charging a higher price for their product they can pay the new required higher minimum wage and maintain the current number of employees.

But this is price inflation, which hurts minimum wage workers the most.

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a good point to start from

hajimeru no yoi ten

始めるの良い点

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Are there any advanced-economy countries that do not have a national minimum wage? ChatGPT:

Yes. Eight OECD advanced economies do not have a single national statutory minimum wage: Austria, Denmark, Finland, Iceland, Italy, Norway, Sweden, and Switzerland.

Instead, minimum pay is generally established through industry or occupation-specific collective bargaining agreements between unions and employers.

Some countries also make selected collective agreements legally binding throughout an industry, and several Swiss cantons have enacted their own minimum wages.

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Minimum wage pro and con arguments. CGPT:

-Pro: Supporters argue minimum-wage laws raise the earnings of low-paid workers, reduce poverty and wage inequality, increase consumer spending, and prevent employers from paying wages below a socially acceptable standard.

Higher wages may also reduce employee turnover, improve morale and productivity, and encourage employers to compete through better management rather than very low labor costs.

-Con: Critics argue when the minimum wage is set above the value some workers can produce, employers may reduce hiring, cut hours, raise prices, automate jobs, or relocate work.

The burden may fall especially heavily on teenagers, inexperienced workers, people with disabilities, and workers in low-wage regions, who may lose opportunities to gain skills and work experience.

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Create a short story of someone with only a high school education starting at $8.00 minimum wage and with hard and smart work and self-improvement efforts rises to be a $100,000 per year branch manager. 500 or less words. CGPT:

Story - The First Eight Dollars

At eighteen, Marcus Reed graduated from high school with average grades and no plans for college. He took a job at a building-supply company for $8 an hour, sweeping floors, loading trucks, and carrying lumber for customers.

Marcus knew the job was modest, but he treated it seriously. He arrived early, learned customers’ names, and asked experienced workers why certain materials were used for particular projects. At home, he watched free business and construction videos, practiced basic math, and improved his computer skills at the public library.

Within a year, Marcus was moved to the sales counter. He did not simply wait for customers to tell him what they needed. He learned to ask questions, identify problems, and suggest complete solutions. Contractors began requesting him because he was accurate, helpful, and honest.

Marcus saved part of every paycheck and enrolled in evening courses in accounting, supervision, and inventory management at a community education center. He never earned a college degree, but he earned several professional certificates and read books about leadership, negotiation, and customer service.

At twenty-four, Marcus became an assistant department supervisor. When deliveries were repeatedly late, he studied the scheduling process and designed a simpler system that reduced errors. Management noticed that he did not merely complain about problems—he solved them.

Over the next several years, Marcus accepted difficult assignments, including training new employees and helping improve an underperforming location. He learned to praise workers publicly, correct them privately, and measure results carefully. He also admitted his mistakes and asked for advice when he needed it.

At thirty-two, Marcus was promoted to assistant branch manager. He now earned more than he had once imagined possible, but he continued learning. He studied financial reports, labor costs, sales trends, and employee development.

Three years later, the company offered him management of a struggling branch. Marcus improved service, reduced waste, developed several young supervisors, and increased annual sales. Within two years, the branch became one of the company’s strongest locations.

Marcus’s salary and performance bonuses eventually reached $100,000 and more a year.

He often told new employees, “My first wage was eight dollars an hour. That job did not determine my future. It gave me a place to begin.”