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Economics Essay

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Text Preview Morgan Krempel
Professor Holland
Economics 201
April 24, 2013
Minimum Wage Increase
“Ultimately, the time is now. To raise the minimum wage, the time is now,” said Delegate Derek E. Davis, of Price George’s County. The increase in minimum wages has been a topic that has been on the rise with much controversy involved. President Obama wants state and lawmakers to increase the minimum wage from $7.25 to $10.10 per hour by 2018. Connecticut was the first state to pass the law, which will increase their minimum wage to $10.10 by January 1, 2017. Maryland is a year and half behind them, making the minimum wage $10.10 by July 1, 2018. The reason for Maryland’s delay is because they want to give businesses more time to adjust to the new and increasing price. The increases will be in steps. The first increase will be from now until July 2018, and will increase to $8 per hour on January 1, 2015. The second increase will be to $8.75 per hour in July 2016. The third increase will be to $9.25 in July 2017, and then the final increase to $10.10 in 2018. The graph below, from the congressional budget office website, shows the increases of wages over the time period.

President Obama commended Martin O’Malley and other lawmakers for “leading by example” in hopes that congress will follow. However, some counties have been setting their minimum wages even higher than $10.10. Montgomery and Prince George’s counties have approved their minimum wage increase to $11.50 by 2017. However, businesses are going to be allowed to pay a lower training wage to workers under 20 years old. However, this increase in wages has caused a lot of controversy and disagreement.

This minimum wage increase applies to several models and concepts associated with our economics class. Some of these concepts are unemployment; specifically cyclical, inflation, demand, substitutions and consumer price index. Additional models that we have learned that also can be applied to the minimum wage increase are the demand curve graph, and the supply curve graph.

The minimum wage increase applies to unemployment because it will increase the unemployment rate. This is not positive for the economy because the unemployment rate is currently higher than past years and politicians are working on trying to fix that. But, because the businesses will have to pay more for employees, they won’t be able to hire as many, and may have to lay some employees off. More specifically, out of the four types of unemployment we learned, this will be classified as cyclical unemployment because cyclical unemployment is directly caused by changes in the economy. In addition to unemployment rising, inflation will also increase.

Inflation is also affected by the minimum wage increase. Due to businesses having to pay more for employees, inflation will rise. Businesses will have to increase their prices to keep their business stable and afloat because the purchasing dollar will not be worth as much. For example, if Rita’s gelatos are $3.99, and to keep getting income for employment, product costs, overhead, etc., they have to increase the gelatos to $4.99 or even higher many consumers may not be able to afford the product and the business will decline. With higher prices, comes lower demand, which will cause a movement on the demand curve. People may not be able to or want to pay the higher prices. When consumers see the price increase to $4.99 for a gelato at Rita’s, it may go out of business because customers will not willing to pay that much. And it’s all because they are trying to bring in more income to balance the minimum wage increase. Then they might start substituting their regular items for cheaper items. If a competitor offers gelatos for $3.50 then the consumers will start to go there and Rita’s could fail.. Below is a standard demand curve graph. With the price increasing, the movement will be to the left.

In conclusion, there are pros and cons to increasing the minimum... Show More

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