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| | Today tariffs are rarely used and the government relies almost entirely on the income tax for funding. | | Today tariffs are rarely used and the government relies almost entirely on the income tax for funding. |
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| | + | ==Minimum Wage and Price Controls== |
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| | + | So far we have been talking about economic exchanges in the absence of government controls. But the government does interfere in many ways in our economy. America enjoys more free enterprise than any other large country, but we are still heavily regulated. |
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| | + | During World War II, the government imposed controls to prevent companies from raising prices during the war. The needs of our military for goods increased demand that would ordinarily shift the demand curve and increase prices. But the government prohibited this from happening by limiting price increases. |
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| | + | Controls on prices (and also wages) were also imposed to control inflation in the early 1970s. A war in the Middle East, and assistance in that war by the United States of Israel, caused the Arab nations to reduce their supply of oil to us. That created gasoline shortages and increased energy costs, which then drove up inflation. Price controls were designed to limit the increases. |
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| | + | Today, the government prohibits employers from paying wages below a certain amount per hour, called the “minimum wage.” It is now $7.15 per hour in New Jersey, but only $5.15 per hour nationwide. If you work 40 hours a week for 50 weeks, or a total of 2000 hours, then that translates to a yearly salary of $10,300. It is nearly impossible to support a family that amount in most areas of the country, and many politicians are constantly demanding an increase in the minimum wage. |
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| | + | Unfortunately, it is even more difficult to survive without a job at all, which is what happens to many people (particularly teenagers) when the minimum wage is increased. Employers who would hire someone to work at $4 per hour might not be able to hire them at $5.15 per hour. Isn’t a job at $4 an hour better than none at all? |
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| | + | Moreover, illegal aliens find a wage of even $2 an hour better than what they could make in their homeland. Companies move operations offshore to take advantage of places that do not have minimum wages as high as ours. Alternatively, workers enter this country illegally to work at low wages and displace American workers, according to several lawsuits. |
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| | + | == Minimum Wage and Dropping Out of School == |
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| | + | Researchers have found that one effect of raising the minimum wage is that more students drop out of school, or do not go on to college, because they can make more money working at jobs than they could before. This can be understood as follows: |
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| | + | :Suppose that "x" number of students quit school to work at jobs when the minimum wage is $6 per hour. |
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| | + | :If the minimum wage is raised from $6 per hour to $7 per hour, then jobs appear more attractive to students and even more will leave school than before. |
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| | + | :Therefore raising the minimum wage causes more students to leave school in order to work at jobs. |
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| | + | Other studies show, however, that the more education that someone has, the higher their average income is. Students who complete four-year colleges make more money on average than students who completely only two-year colleges, for example. Students who complete two-year colleges likewise have higher average incomes than students who end their education after high school. |
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| | + | Raising the minimum wage thus entices students to take advantage of a "short-term" benefit of the higher wage, but they are worse off in the "long-run". They would make more money by staying in school and not being enticed by the increase in the minimum wage. |
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| | ==Assignment== | | ==Assignment== |