Price Floor and the Minimum Wage Bill

Government policy has an important effect on the economics system. Whether a government chooses to tax a good, pay out subsidies, imposes a price floor, or set a price ceiling on a good. The most influential price floor issue in the United States would be the Federal statutory minimum wage, currently at $7.25. What does setting a price floor (a minimum price) really do to the economy. The mandated minimum price set above the market equilibrium will create, excess supply, deadweight-loss, ineffecient increases in quality, and misallocation of resources. With the minimum wage issue, the key effect on the job market would be the excess of supply. It is not the American worker who is demanding a job but it is the American employer who is demanding workers. However employers cannot not afford the amount of labor in the market at the mandatory elevated wage level, thereby leaving some unemployed.

The current legislation on the floor proposes an increase to a $10.10 minimum. A survey done by the Wall Street Journal showed that 63% participants would be in favor of the new bill Minimum wage survey Perhaps this indicates a lack of communication of the whole truth to the average American. 

The bill is backed by Democrats and is finding support also from the Republicans who fear opposing public opinion. "The Democrats believe fighting for a higher minimum wage demonstrates they care about working Americans. Republicans argue a wage hike would lead to fewer jobs and actually hurtAmerica." Minimum wage bill

What could the bill do?
European job markets could be a good indication of what is down the road for the U.S. with a higher minimum wage.
"There are nine countries with a minimum wage (Belgium, Netherlands, Britain, Ireland, France, Spain, Portugal, Greece, Luxembourg). Their unemployment rates range from 5.9% in Luxembourg to 27.6% in Greece. The median country is France with 11.1% unemployment...The biggest country in Europe is Germany. No minimum wage and 5.2% unemployment." What does high minimum wage do?
Germany did have a high unemployment rate. They did away with there minimum wage and allowed for more low-wage jobs and wage subsidies. We have the potential to offer some a higher wage but at the expense of more being out of work entirely.

Along with creating a higher unemployment the minimum wage takes away the employers' ability to compete for good employees. Employees are less willing to stick around with a certain company if  they can get a comparable salary elsewhere, thereby effecting retention rates. They cannot attempt to attract employees with a higher salary. How can employers find and compete for the best labor?

The Farm Bill

Many things effect the supply side of any market. Subsidies are supply-side shifters that shift the supply curve to the right. After a right sift a producer at any given price is willing to produce more of that good. Subsidies are incentives for businesses to produce more of a product because they have a guaranteed buyer.

Since the Agriculture Adjustment Act of 1933 and 1938, the government has been giving support to struggling farmers. The government initially set out to control the excess supply of crops and dairy products by paying farmers to restrict their crop size and then buy up their excess. During the 90's the government began paying out to farmers regardless of their yield. Therefore giving some farmers an incentive not to farm at all. This is one element of the Farm Bill that Congress is trying to address. Now if Congress does not pass the current Farm Bill the milk supply will shrink dramatically leading to rising prices. More milk will be sold to the government who will be the "highest bidder", thereby taking milk out of the market and reducing the supply to the average consumer.

Is the agricultural market too tied with the government to work itself out? Is it worth milk prices of $7?

http://www.csmonitor.com/USA/Politics/2013/1206/Milk-for-7-a-gallon-Farm-bill-impasse-could-send-US-off-dairy-cliff.

Comparative Advantage and Economic Growth

The basic principle of global trade is comparative advantage among different nations. We live in a world that is easily traveled and seems to shrink in size. Our lives and choices in the United States impact many individuals all over the world and vice verse. To observe comparative advantage easily we look at a Production Possibilities Frontier model. How much does one country sacrifice in producing one good over another; what are their opportunity costs? Each country has limited resources and different resources available to them in comparison to other countries. The most important resource in producing any good are human resources. Many use this fact to help explain the trade deficit between the U.S. and China. It is more efficient for American companies to develop and design goods and have them assembled in another country like China where there is a vast supply of inexpensive labor. It would be inefficient for the U.S. to use its higher skilled labor force to assemble inexpensive products in factories, the opportunity cost would be great.

However another factor in trade between the U.S. and China is the standard of living in China. Countries are better off when they trade with each other but at times there can be an imbalance. Few Americans would prefer higher priced domestic goods over their efficient and inexpensive goods 'Made in China'. What can be done? Well using tariffs to 'push' China would be ineffective and possibly harmful. We essentially seem to be waiting for China's growing economy to 'catch-up'. Based on GDP China is second in the world but GDP per captia is 92nd (http://en.wikipedia.org/wiki/Economy_of_China). Luckily China is the world's fastest growing economy and this is a good thing even for Americans, "...new ideas are public goods that spread across continents." (http://www.nytimes.com/roomfordebate/2011/01/18/can-the-us-compete-with-china-on-green-tech/how-we-gain-from-chinas-advances) 


An emerging middle class is coming in China and this is a sign for American companies. When the standard of living increases, demand for goods increases, thereby increasing production and the effect is felt beyond country borders. When one country succeeds and experiences growth many other countries experience the benefit. (http://www.bankrate.com/finance/economics/chinas-economy-influences-us-2.aspx)