Economics Project

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Economics Project

• Minimum Wage

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Minimum Wage

• Since 1997, the economy downturn in Hong Kong
  leads to the rapid increase of unemployment rate.
  Especially the low income families they faced the
  cutting of income and the reduction of staff.
• As a result, the minimum wage policy is proposed
  to protect labours from being exploited.

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Minimum Wage

• An effective minimum wage is set above the market
  equilibrium so it will lead to an excess supply
  of labour.

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Wage Rate

• WageMRP
• Wealth maximizing condition MRPMFC
• Wage rate is a kind of market price. Under
  competitive constraints, employers must offer
  suitable wages to workers, and these suitable
  wages are measured by contributions
  (productivity) of workers.
• Productivity of workers having higher level of
  education and more experience is higher.

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Wage rate

• Wages increase as workers seniorities. The more
  years the workers work, the higher wage they
  receive.
• However, workers wages do not reflect their
  productivities.
• Give civil servants as an example a newly
  entered civil servant receives 10000/month,
  while another who has worked for 5 years receives
  35000/month. However, their responsibilities are
  more or less the same. It shows that the workers
  wage do not in proportion to their
  productivities. Their wage are determined by
  their seniorities.
• Therefore minimum wage rate can protect the
  labour who lacks experience from receiving a very
  low wage.

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More About Wage Rate

• Substitution effect wage ,a person will work
  longer because of the increased opportunity cost
  of leisure time.
• Income effect wage ,a person can afford to
  work less because he can earn more income than
  before without working more.

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QuestionAnswer

• Q1 After carry out the minimum wage policy, the
  total output of the country will??
• Ans Decrease. It is because the higher than
  wage, the lower than quantity demanded for labor
  force. Labour demand curve is downward sloping.
  The decrease in labour force, of course, leads to
  the decrease of total output.

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QuestionAnswer

• Who will lose their job under this policy?
• Ans Low Productivity --The labour whose marginal
  product revenue lower than the minimum wage will
  suffer most. It is because minimum wage is always
  imposed above their productivities the teenagers
  who lacks work experience

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Advantage of minimum wage

• This can increase the market consumption because
  people have higher income and faster the recovery
  of economy. Also when the wage is too low, people
  will prefer unemployment other than having a job.
  Therefore the minimum wage can encourage more
  labour to enter the labour market.

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Disadvanges of minimum wage

• Under this policy, the employees are forced to
  increase the wage of labour so their production
  cost is higher. As a result, some employees will
  use more machines rather than employ the labour.

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Choice of contract

• Choice of different contractual arrangements
  depends on
• -how risk is shared
• -the transaction costs involved in the
  arrangement

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Choice of contract

• Proxy payment ( e.g.. Time rate )
• Reason it is hard to measure ones
  contribution
• Risk bear by producer because no direct
  linkage between output and wage
• Problem shirking problem
• Cost monitoring cost

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Group Members

• Chan Ping Ying 6A (1)
• Leung Sze Wing 6A (7)
• Man Chui Ying 6A (9)
• Yu ka Yan 6A (14)
• Yu Kam Fa 6A (15)