Question: Some Hong Kong politicians have strongly demanded legislation which would introduce a minimum wage for low income earners, such as security guards and cleaning workers.
(a) Consider an industry without unemployment when there is no minimum wage. With the aid of a diagram, explain how the introduction of an effective minimum wage would affect
(a) (i) the number of workers employed in that industry. (4 marks) (ii) the total wage earnings of the workers in that industry. (7 marks)
Sample Answer (a) (i) Wage Labour D S Minimum wage level ︷ unemployment W2W2 W1W1 Q2Q2 Q1Q1 + _ After the introduction of an effective minimum wage, the wage rate increases from W 1 to W 2, the number of workers employed in that industry decreases from Q 1 to Q 2.
(ii) The total wage earnings of the workers may increase, decrease or remain unchanged. It depends on the price elasticity of demand. If the demand for workers in the industry is inelastic, the percentage decrease in quantity demanded would be smaller than the percentage increase in wage, the total wage earnings of the workers in that industry increase. Meanwhile, if the demand for workers in the industry is elastic, the percentage decrease in quantity demanded would be greater than the percentage increase in wage, the total wage earnings of the workers thus decrease.
(b)“ A minimum wage should be introduced to protect the interests of low-income workers. ” Evaluate this proposal.
Sample Answer (b) (b) If a minimum wage is introduced, the number of workers employed will decrease (by (a)(i)). So, introduction of a minimum wage would lead to unemployment problem. The interest of low-income workers cannot be protected. Considering the total wage earnings of the workers, after the introduction of a minimum wage, by (a)(ii), the total wage earnings may decrease when the demand for the labour is elastic. So, the interest of those workers cannot be protected.
Even if the total wage earnings increase under the case of inelastic demand, with a higher wage, the employers may choose to employ workers with higher productivity or higher education level, the lower-skilled people such as teenagers cannot find jobs and get working experience easily. This also leads to unemployment and other serious social problems. To conclude, the minimum wage cannot protect the interests of low-income workers.
Comments The candidate is able to apply economics concepts accurately to explain the effects of introducing an effective minimum wage. He manages to integrate all relevant economic terms, concepts and relationships in his analysis. Also, he presents an accurate supply-demand diagram as a tool to help with his job. The analysis is logically consistent and comprehensive. He also demonstrates informed judgment and evaluation of the proposal of introducing an effective minimum wage from different perspectives such as the possibility of a reduction in the total wage earnings and the undesirable consequences of unemployment.
Do you agree? In Hong Kong, New Senior Secondary education is free of charge. Students may think that they have no cost to study in Hong Kong since there is no need for them to pay for the education. Do you agree with them?
In Economics, you will study “ opportunity cost ”. Actually, opportunity cost is involved when they choose to receive education instead of working in the society. They have to forgo the wage income earning from working. The wage income is the private cost. Meanwhile, the society have to pay for the education. Taxpayers have to pay tax to support the education. The tax has alternative use. These is the social cost. The private cost and the social cost will become the opportunity cost of having the new senior secondary education.