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Why Market Forces Will Overwhelm a Higher Minimum Wage, Business Homework

In Chapter 6 of the textbook, read “Why Market Forces Will Overwhelm a Higher Minimum Wage” by David Neumark then read the following Forbes’ article.  While some information in the article is less current such as the anticipated Biden bill which has been outlined, the article provides a comprehensive history about the minimum wage.  

After reading both articles, answer the following prompt based on the first letter of your first name.  For example, my first name is Tammy and first letter starts with a T; therefore I would answer Prompt 2.

Prompt 1 – Letter A – M 

Suppose you are an economist in charge of designing policy to help low-wage workers. Would you prefer a minimum wage or an earned income tax credit? Why? 

Prompt 2 – Letter N – Z

Suppose you are a politician running for office. Would it be easier to campaign on a platform of a higher minimum wage or a more generous earned income tax credit? Why?

Can be written in 200 words 

Also please add formal reply to these to discussion; 

The earned income tax credit is the tax policy that the majority of economists support. Should the minimum wage increase, it would be necessary for firms to spend extra to pay their workers the minimum wage. Consequently, firms would cut down on personnel numbers leading to more unemployment (Mankiw, 2021). As a result of the establishment of the EITC, the burden of paying taxes for workers is decreased. Because of this, they would have access to a greater amount of accessible money.

The Earned Income Tax Credit is one tool that might combat income disparity. Those with higher incomes are the ones who are expected to foot the bill. However, businesses that already pay their employees a low income will be expected to pick up the tab for the increased minimum wage (Smith, 2021). Because they produce items for lower-income clients, these employees are the ones most negatively affected by minimum wage regulations.

A rise in the minimum wage that follows inflation (a process known as “indexing”) would result in a loss of purchasing power over time (Mankiw, 2021). The two concepts need to be differentiated from one another. If workers’ salaries kept pace with rising costs of living and manufacturing, people receiving the minimum wage would see a rise in their buying power over time. As a result, some economists think that just raising the income to account for inflation is not the best answer for assisting those who are now making the minimum wage (Smith, 2021).

Conclusively, members of the middle class who do not need the minimum wage are beginning to take advantage of its existence. Nevertheless, the EITC assists people in the lowest income band, who often stand to gain the most from it.

If I was an economist in charge of designing policy to help low-wage workers. I would prefer the earned income tax credit. First, I have to say that before reading the article and the section in the textbook, I was unaware there was a debate over raising the minimum wage. I can see how some would prefer the minimum wage over the EITC and vice versa. However, based off the information provided in the textbook and article, I suppose I would choose the EITC over the minimum wage increase. I do think the federal minimum wage should be higher but not necessarily to $15/hour. From $7.25 to $15 is a huge increase. I think raising the minimum wage is a temporary fix and not necessarily a solution. If I were a politician, I would say the solution is investment in education but that’s not my topic so I digress ;o). If the minimum wage is increased by such a drastic amount, it will only be a matter of time before things become too expensive for everyone. Businesses will raise their prices to make up for the additional expenses they incur. Before we know it, the $15 will not be enough and the minimum wage would have to be increased again. The downside of the EITC is they have to wait until tax time, once a year, to receive those funds (assuming they don’t owe any taxes, back taxes, garnishments, etc.) If they do receive a refund as well as being willing and able, they can put the money away to help them throughout the year. In general, what I like about the EITC is that it specifically targets those who will benefit from it. 


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