Identify a national economic issue and analyze it from both a macroeconomic and microeconomic perspective.
INTRODUCTION
The subject, of the minimum wage, is highly controversial, both politically and economically, in the United States. Different political and economic concepts understand minimum wage from a very different perspective and assert that minimum wage benefits/hurts an economy. The neo-classical economists and Republican Party (believes in small government and non-interference) argue against minimum wage; whereas neo-Keynesian economists assert that minimum wage is essential as the capitalist system is flawed and principles on which it is based never fully come into play.
Minimum wage affects the economy, as per studies, both at micro and macro levels. For instance, when we emphasize the effects of minimum wage on hiring (demand for labor) and willingness to work (supply of labor), it becomes a microeconomics subject. However, we try to understand its impact on aggregate consumption and unemployment rate; it becomes a macroeconomic objective (Cato).
FROM A MICROECONOMICS PERSPECTIVE
Wage is a usually a microeconomics subject, as it helps us understand how a nominal and real wage affects supply and sand for labor. We learn that nominal wage is negatively related to demand for labor. It means that whenever a nominal wage swell or increase, it will decrease quantity demanded labor. On the contrary, whenever nominal wage will decrease it will increase quality demanded labor. Neoclassical economists and conservative politicians argue that when government interferes to increase a nominal wage artificially, this reduces the demand for labor. Also, employers prefer to hire specialized workers rather than non-skilled workers. It affects a firm’s revenues, and it reduces chances, of a non-skilled worker or laborer to be employed (Doyle).
Another disadvantage, according to classical and neo-classical economists is that it increases the price of product or service, which may decrease quantity demanded that product or service, especially in a highly competitive market.
On the other hand, Keynesian and neo-Keynesian economists are of the view that minimum wage benefits ordinary or average worker, as it increases nominal and real income in the short run. It allows an individual to spend more on different products and services. Another benefit, which is intangible, is that minimum wage increase adds more value to product and service, as firm level, this improves the quality of product and service, which has benefited for a firm in both short and long run (Doyle).
FROM MACROECONOMIC PERSPECTIVE
Perspective, of classical and neo-classical economists, is that the minimum wage causes semi-structural employment at macro-marvel. It implies that the industry prefers skilled labor, as it paid a higher wage and therefore, non-skilled labor is almost discarded. It creates various kinds of complications in an economy, which compels government and economic institutions to take more measures to address these complications. Also, it disturbs supply and demand phenomenon of the economy, which is devastating in both short and long run.
The opposing school of thought asserts that because of the minimum wage, the real income increases in the short run, which affects aggregate consumption. For an American economy, consumption is an engine of growth and whenever consumption increases, naturally or unnaturally, economy, of the United States, grow. Also, because of the increase in quality of product and service (value-added), a product or service becomes competitive, and at the macro – level, it positively affects exports (Doyle).
CONCLUSION
We have discussed an economic concept and issue, minimum wage, in detail, from different perspectives (macro/micro and Keynesian/classical). From the discussion, we infer that minimum wage has pros and cons at both micro and macro levels. As the evidence regarding its benefits is not conclusive, therefore, in the United States, it is a highly controversial subject. However, it must be acknowledged the capitalist system is flawed, which gives subtly permits the government to interfere. The supply and demand forces are weakened because of the influence of Big Money in politics, which is why the government needs to interfere and set a minimum wage.
Work Cited
Cato. “The Minimum Wage Debate.” CATO institution. CATO Institution, 31 December 2017. Web. 8 February 2018. https://www.cato.org/joining-the-minimum-wage-debate.
Doyle, Alison. “Pros and Cons of Raising the Minimum Wage.” The Balance. The Balance, 14 December 2017. Web. 8 February 2018. https://www.thebalance.com/pros-and-cons-of-raising-the-minimum-wage-2062521.
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