The Concept of Minimum Wage

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Table of Contents

Introduction
Key Concepts of Mike Konczal’s Article
The Graph from the Textbook
The Differences between Mike Konczal’s Article and the Textbook
The Concept of Elasticity
Key Points of Tim Worstall’s Article
Conclusion
Works Cited

Introduction

The minimum wage is the most common example of the price floor. The term refers to a legal floor of the price of labor, which governments of different countries set to make sure that workers get decent salaries. The concept of minimum wage raises many controversial questions since in addition to the obvious advantages, which Mike Konczal argues about in his Economists agree: Raising the minimum wage reduces poverty, the minimum wage policy has several considerable drawbacks, such as higher unemployment rates, an increase in the black labor, and so on.

Key Concepts of Mike Konczal’s Article

Mike Konczal focuses on the fact that the minimum wage can reduce poverty. After examining many studies on this topic, he has concluded that while the authors of those studies argue if the higher minimum wage causes the loss of jobs, almost all of them agree on the point that the minimum wage helps to decrease poverty.

He states that Arin Dube, an economist, concluded that 10% increase in the minimum wage would reduce the number of poor households by 2.4% (Konczal par. 3). Moreover, the rise of the minimum wage boosts the economy of the whole country and increases the quality of life. It has its greatest effects on lives of those the poorest ones, significantly reducing the poverty gap.

In addition, the policy is self-enforcing and does not require the government to spend any money from the national budget. It can also complement a series of policies that the government already uses, such as Medicaid, food stamps, etc. (Konczal par. 4).

The Graph from the Textbook

The textbook, in its turn, is focused on adverse effects of the high minimum wage. First of all, it proves that an increase in the minimum wage causes higher unemployment rates. As in the case of any other price floor, if the equilibrium price is less than the price floor, that leads to an unwanted surplus: the minimum price is higher, so producers want to supply more, but consumers want to buy less. Consequently, when the equilibrium wage rate (E on the graph below) is less than the minimum wage, it increases the number of unemployed (the distance between points A and B).

The Graph from the Textbook.

The Differences between Mike Konczal’s Article and the Textbook

So, while Mike Konczal asserts that the higher minimum wage has a huge positive effect, that is reduces poverty, the textbook tells about its negative consequences as well. Among those are an unwanted surplus, deadweight loss, wasted resources, inefficient distribution of sales between sellers, too high level of quality and an increase in the black labor. Konczal denies the main of those – an unwanted surplus; he states that if an increase in the minimum wage is not too big, no adverse employment effects will follow (par. 1). However, he does not focus on it and moves to the topic of the levels of poverty.

The Concept of Elasticity

Mike Konczal mentions the concept of elasticity several times. He says that if the 10% increase in the minimum wage reduces the number of poor individuals by 2.4% the elasticity is -0.24 in this case (Konczal par. 3). Indeed, elasticity is calculated as the ratio of the change in the first value (in percentages) to the change in the second value (in percentages); additionally, the first value is influenced by the second one. So, if the minimum wage is 10% higher, and that causes the reduction of poverty by 2.4%, elasticity is 2.4/(-10), which equals -0.24.

Key Points of Tim Worstall’s Article

Tim Worstall, in his article devoted to the minimum wage and its effects on the poverty rates, disagrees with Mike Konczal and states that higher minimum wages fail to improve the quality of life of poor households. According to his article, the truth is that people who receive minimum wages do not really come from poor households (Worstall par. 1).

Therefore, they do not get more money. At the same time, they have to pay higher prices, which inevitably grow as the consequence of the higher minimum wage. Mike Konczal also states that the Earned Income Tax Credit is more effective in reducing the poverty gap.

Conclusion

It is hard to determine whether the high minimum wage has more positive or negative effects on the population and the quality of life of the poorest families. On the one hand, due to this policy, people can get more money for their work. On the other hand, fewer people will get that money. As for me, I tend to agree that a significant increase in the minimum wage will only worsen the situation since all adverse effects will occur then. However, I also agree with Mike Konczal, who says that small increases in the minimum wage will not have adverse effects.

Works Cited

Konczal, Mike. Economists agree: Raising the minimum wage reduces poverty. 2014. Web.

Worstall, Tim. Raising The Minimum Wage Doesn’t Reduce Poverty So Raise The EITC, Which Does, Instead. 2015. Web.

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