ECO204 Week 5 Discussion 1 Demand for Labor and Minimum Wage

Why is the demand for labor called a derived demand?

“Economists call demand for labor ‘derived’ demand, as it is derived from the consumer demand for the goods and services workers produce. Such demand is strong right now, and companies either staff up to meet that demand or leave profits on the table” (Bernstein, 2018).

In the labor market, what are the firm’s demand curve for labor and the workers’ supply curve of labor?

The demand curve for labor can be described as follows, “As the firm employs more labor in combination with fixed amounts of the other inputs, the additional amounts of output per additional unit of labor eventually decline” (Amacher & Pate. 2019, Ch. 12.2).  The supply curve of labor “As wage rates rise, the quantity of labor supplied increases. This supply curve of labor, like most supply curves, is upward sloping. As wage rates rise, an individual will want to work more hours. In general, as wages rise, more people will choose to give up leisure in favor of more income” (Amacher & Pate, 2019, Ch. 12.2).

How is a firm’s wage normally determined in the labor market?

“In a competitive labor market, each kind of firm will want to hire more labor at the existing wage rate. The market demand for labor could increase, raising both the level of employment and the wage rate. The amount by which the market wage increases will depend on how large the industry is relative to the labor market” (Amacher & Pate, 2019, Ch. 12.4).

How could Amazon decide to raise its minimum wage to $15 per hour, despite the federal minimum wage being fixed at $7.25 per hour?

Amazon is a “price maker,” meaning it is leading the economy in it’s $1 trillion dollar market, so this firm has the market power to set prices and wages (Bernstein, 2018).  Another reason why they can raise minimum wage is to help the numbers of unemployment lower due to offering higher compensation packages which will retain the workforce and bring more dedicated workers to Amazon compared to other companies.         

What are positive and negative effects of Amazon raising its minimum wage to $15 per hour on its employees, total revenue, and other companies and their employees?

A benefit for this raise was stated by Bernstein, “Amazon has a lot of workers in Texas, Florida, Indiana and Kentucky, lower-wage states where the bump to $15 will constitute a real, much-welcomed raise.  It’s also the case that some of these higher labor costs will land right back in Amazon’s coffers” (2018).  Bernstein also stated that another benefit would be the 350,000 workers would not increase inflation due to there being 160 million in the workforce currently (2018).  This also led to the benefit of trying to push for a higher federal minimum wage.

Resources

Amacher, R., & Pate, J. (2019). Microeconomics Principles and Policies. San Diego, California: Bridgepoint Education, Inc. Retrieved from https://content.ashford.edu

Bernstein, J. (2018, October 7). Amazon’s raise: Unequivocally good news. The Journal Gazette. Retrieved from http://www.journalgazette.net/opinion/columns/20181007/amazons-raise-unequivocally-good-news