Role of Government Minimum Wage

Role of Government

Minimum Wage Laws

Artificially adjusting wages above market rates set by the supply and demand of labor increases unemployment. This happens because of several factors (Kibbe). If employers believe that individuals will not produce the value set at the minimum wage rate, employers will not hire the workers. Thus, employees who might have been hired at market wages become unemployed. Many firms may be unable to pass on their increased labor costs to consumers. Consumers ultimately determine the price of any good on the market, and they may decide that a business's product is not worth a higher price. When businesses cannot pass along the higher labor costs they have to absorb them in other ways, often by eliminating workers though decreased production or by substituting them with more efficient technologies.

Minimum wage laws hurt the least employable and the poorest in the job market. Teenagers suffer the most by an increase in the minimum-wage rate because these workers are generally the least experienced, least skilled, and least productive (Kibbe). According to the Bureau of Labor Statistics, unemployment of teenagers is a huge problem. The unemployment rate for all teenagers actively seeking jobs is 16.5%, and the unemployment rate for black teenagers is 36.9%, more than double the overall average. According to the 1981 Report of the Minimum Wage Study Commission, the forty-six percent rise in the minimum wage between 1977 and 1981 destroyed 644,000 jobs among teenagers alone. Because of minimum wage laws, unemployed teenagers and other unskilled workers cannot gain the experience and skills that would make them employable at higher wages later. Still, supporters of minimum wage laws argue that the impact on teenagers is acceptable because the laws help adults trying to support their families. However, this simply isn't true, only 2.2% of working adults are earning the minimum wage.

There are many cons of minimum wage laws. These include (Minimum wage, Wikipedia):

Reduces profit margins of business owners employing minimum wage workers.

Increases prices for customers of employers of minimum wage workers, which would pass through to the general price level.

Reduces economic growth by skewing factor-choice incentives away from the optimum choice

Limits the freedom of both employers and employees. Minimum wage laws make it illegal for employers to pay workers less than the minimum wage. This also prevents workers from being able to provide labor or services for less than the minimum.

Increases the cost of government social programs due to assistance programs aiding the laid-off workers.

Decreases human capital by encouraging people to enter the job market instead of pursuing further education.

Reduces the international competitiveness of a nation by raising the cost of factor inputs, and therefore output, relative to the level of other countries. It is argued that this is particularly problematic in developing economies.

Further, minimum wage laws are less effective at reducing social exclusion and are more damaging to businesses than other alternatives such as training programs and the Earned Income Tax Credit (Minimu wage, Wikipedia).

Anti-trust - Microsoft

Our economy consists of many new types of industries such as computer software, Internet-based businesses, communications services and equipment and biotechnology (Stenborg). These industries in our new economy present many problems with applying antitrust laws, including network effects and low marginal costs and high fixed costs (Stenborg). and, according to Stenborg, innovation in the new economy fosters monopolies and monopolies become more innovative. These issues apply to many companies in the new economy, but this discussion will focus on Microsoft, a major target of the government for anti-trust violations.

The network effects theory holds that products are more valuable to consumers the more widely they are used (Stenborg). This is certainly true of Microsoft Windows, an operating system that received the widest range of hardware and software compatibility as its popularity soared. Further, as businesses invested time and money to train their employees in Microsoft products, they continued to upgrade to the same software to maximize productivity.

Firms in new economy industries must invest great sums of money to develop their products, either in upfront research and development or in physical or virtual networks to create and deliver products (Stenborg). Microsoft is a natural monopoly business (Spaudling). Initially, it is expensive to produce software, but it is very cheap to make copies. The marginal cost of Microsoft's software is virtually zero, so average total costs decline with each copy sold. As the company established its lead, it become more difficult for competitors to compete against it with lower prices, sine their own costs have to be recouped with fewer sales.

In the new economy, innovation produces a winner takes all or almost all of the market (Stenborg). This happens because of the network effect discussed above which makes it easier to attract additional customers with more attractive products. and, making more sales allows firms to reduce their average costs and to make high profits while charging low prices. In fact, in the new economy network effects and scale economies are so strong that some companies will give away their products to gain market penetration and influence standards (Stenborg). This is in sharp contract to the traditional function of a monopoly that tries to restrict sakes and raise prices. In the antitrust suit, Microsoft was accused of predatory pricing (Spaulding), but it was merely acting as a new economy business that was trying to expand its presence in the operating system and browser markets by offering low prices and by giving away its browser software.