Supply and demand

The concept of minimum wage is to ensure that employers do not pay wages below the mandated level. However this does not always happen instead this policy ends up hurting these workers and the economy in terms of lower job opportunities. This is because the increase of labor costs keeping all other things constant would eat into the net profits of the company. Therefore in order to offset the decrease in profits, the need for low skilled labor decreases and companies look for higher productivity workers.

The groups that are directly affected by the minimum wage consists of young workers or teenagers, part-time workers and workers from non-poor families. According to the Bureau of Labor Statistics, 1. 8 million paid-hourly employees were paid the federal minimum wage of $7. 25 in 2010. 5 These 1. 8 million employees can be broken down into two broad groups: Roughly half (49. 0 percent) are teenagers or young adults aged 24 or under. A large majority (62. 2 percent) of this group live in families with incomes two or more times the official poverty level.

6 Looking just at the families of teenaged minimum wage workers, the average income is almost $70,600, and only 16. 8 percent are below the poverty line. 7 Note that the federal minimum wage applies to workers of all ages. 8 The other half (51. 0 percent) are aged 25 and up. 9 More of these workers live in poor families (29. 2 percent) or near the poverty level (46. 2 percent had family incomes less than 1. 5 times the poverty level). 10However, even within this half of all minimum wage employees, 24.

8 percent voluntarily work part-time, and just 34. 3 percent are full-time full-year employees. 11 Only 20. 8 percent of all minimum wage workers are family heads or spouses working full time, 30. 8 percent were children, and 32. 2 percent are young Americans enrolled in school. 12 The popular belief that minimum wage workers are poor adults (25 years old or older), working full time and trying to raise a family is largely untrue. Just 4. 7 percent match that description.

13 Indeed, many minimum wage workers live in families with incomes well above the poverty level. In order to understand the effect of raising minimum wage, the competitive model for economy can be used. This model requires a negative sloping demand curve for labor and wage rate that is competitive in nature. This means that the wage rate is not determined by any individual agents and is always equal to the market rate. In the figure shown below the demand curve is labeled as DD and the supply curve is SS.

As mentioned, since the market decides the wage rate , the intersection of the demand and supply gives this rate – Wc. The corresponding employment rate is Ec. By imposing the minimum wage Wm, another corresponding employment rate emerges Em. With the implementation and increase of minimum wage, the demand of employment reduces and also has a corresponding excess supply for labor. However with the increase in minimum wage there is also an influx of new labor attracted by the minimum wage which puts further pressure of the employment opportunities available.

However this comes at the expense of low skilled labor who find it very difficult to compete in the new scenario. The effects of raising minimum wage could be channeled in the following ways: * Decreased employment opportunities to keep profit margins * The increased cost of labor may be passed on the to the consumer in terms of higher prices for products and services. * Firms may decide to reduce the working hours and maintain the existing labor force which diminishes productivity of the firms.

* Reduced job training which diminishes the firms to maintain high productivity among the labor force. However if the model is assumed to be the monopsony model, the economy is considered to be marginally competitive. This means that majority of the market share is under a few firms. In this scenario, if the minimum wage is increased from below competitive wages to competitive wages as shown in the diagram, the employment rates will actually increase.

This is because there is a new found interest in the labor force to work in these industries and the companies can afford to pay these wages. However this concept is not widely used due to low presence of lower- wage firms in comparison to the large labor forces of an economy. Reference 11 Author's analysis of the Bureau of Labor Statistic's Current Population Survey data for March 2010. http://www. downsizinggovernment. org/labor/negative-effects-minimum-wage-laws#top Question 3: Impacts of an Appreciating Currency.

In the case of appreciation of the yen, the following impacts could occur to Japanese firms * The first effect would be on the negative effect of exports and as a result would cause the firms to become less competitive based on price. * Another effect would be as a result of the exchange rate fluctuations. Certain firms might not be protected to negative fluctuations as a result of dealing with yen as their primary mode of currency. This therefore can eat into the profitability of the Japanese firms and cause multinationals to shift overseas to a more stable country.

Therefore in short, the reduction in exports due to an increase in the value of yen is because the Japanese goods have now become more expensive to other countries. Therefore this reduction directly affects the firms that deal with these exports and thus affects their profitability. However , in spite of the decrease in exports , Japanese firms now have the ability to expand overseas due to the higher purchasing power of the yen. One example of this phenomenon was when the liquor company Asahi took over the Independent Liquor from New Zealand for 1. 3billion dollars.