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Economics of Minimum Wage A Policy Analysis

Minimum Wage – Policy Analysis 

The following is an excerpt from the upcoming publication under Macroeconomics. The research-focused report written with a storyline discusses the intersection of policies, economics, finance, science, technology, art & culture. This is a signature presentation from The middle Road. The Biden administration’s well-thought-out current policy to increase the minimum wage to $15 per hour. Minimum wage enables social change and impact by empowering marginalized and underserved communities globally. Further, many students in the US work part-time to fund their education and serve as an essential source of meeting operational expenses. As tuition fees have increased steadily over the years in the US, wages, mainly minimum wages, have not kept in step, creating a widening gap between the two. The productivity of employees has gone up, and so should the minimum wage. Let’s take a look at both the demand and supply side of this policy.

Demand Side Economics: An increase in the minimum wage would increase the disposable income adjusted for consumption propensity. Example hours per week in a month translates into $2400 per month. If the marginal propensity to consume is 70 percent  i.e., you will spend 70 percent of your earnings on goods and services is $1680. If the minimum wage is $11, the increase in consumption is (15-11)*40*4 per month=$640 per month. Y is the output or income of all households. The income is divided between savings and consumption. T is the summation of all taxes i.e. corporate and sales tax.

The disposable income is Y-T; Left Y = Output, T: Taxes

Supply-Side Economics: Supply-focused economists will say that an increase in the minimum wage would motivate people to work harder to increase working hours to more than 40 hours per week as they now get to earn more wages for their output. They might be more diligent and productive and have an incentive to work long hours and be effective. Ignore taxes and keep other factors constant. Subscribe to The middle Road to learn more on economics and much more. Click here

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