Impact of Minimum Wage on Employment and Economy

This assignment provides an in-depth analysis of the impact of minimum wage on employment and economy in various countries, including Australia and the US. It examines how minimum wage affects labor market, aggregate employment, and consumer price indices. The assignment also discusses trade policies and their impact on employment and economy.

Assessment

Table of Contents
PART 1 - TRADE WAR BETWEEN CHINA & THE US ............................................................1
1.1 Effects of US's import tariffs for Chinese leather handbags on US consumer and producer
surplus.....................................................................................................................................1
1.2 Impact of import tariff on price of US produced cars that rely on steel and market quantity
of cars.....................................................................................................................................3
REFERENCES................................................................................................................................7
PART 2 - MERGER OF VODAFONE AND TPG TELECOM ...................................................9
2.1 Market structure and characteristics of telecommunication industry in Australia...........9
2.2 An economic analysis on ACCC's concerns, with rationale behind decision of Australia
for rejection of proposed merger of Vodafone and TPG Telecom.......................................10
2.3 Recommendations for type of market structure for telecommunication industry in
Australia...............................................................................................................................11
REFERENCES..............................................................................................................................13
PART 3: LABOUR ELECTION PROMISE – MINIMUM WAGE RATE.................................15
3.1 Economic theories and concepts for increasing the minimum wage rate......................15
3.2 Impact of significant increase in minimum wage rate on Australian labour market......15
3.3 Illustration on how significant increase in minimum wage rate on demand, supply, price
and quantity for a normal good in Australian economy.......................................................18
REFERENCES..............................................................................................................................20
.......................................................................................................................................................21

PART 1 - TRADE WAR BETWEEN CHINA & THE US
1.1 Effects of US's import tariffs for Chinese leather handbags on US consumer and producer
surplus
A trade war is considered as the major factor that diminishes or lead economy of a nation
to recession period. It mainly happens when any country retaliates others due to raise in import
tariffs or impose some more restrictions to oppose their imports (Han, 2018). Hereby, tariff can
be defined as a tax or duty which is imposed on goods that are imported into a country. So, at
global level, it majorly affects the consumers and organisations, in terms of hike in existing
price. In context with US – China Trade war, it is highly pushing the world economy where, the
longer it goes on will result in damaging the international trade (Stolper, 2017). In order to
protect domestic companies, in January 2018, The US President Donald Trump has put heavy
excise duties for imposition of tariffs against Chinese unfair tactics for building the high trade
surplus. It includes the planned levy tariffs of 10% on more than $300 billion of Chinese imports.
After such restrictions, Trump has felt that it is majorly impact on economy and job security of
citizens of US (Moon, 2018). In apparel market, like targeting on leather handbags that made in
China, it adversely affects the demanded and supplied quantity of domestic market.
1

From the given figure, it has been analysed that due to uneven tax burdens on certain
commodities like leather handbags, has distorted the investment decisions. It has resulted in
decreasing the economic growth including lower GDP, employment and wages in long run. Due
to trade barriers, quantities of goods especially in apparel market has been much reduced in US
market, that adversely effect the consumers and business both negatively. Hereby, effects on
consumers can be seen by reduction in quantity of demand because they have to more for
purchasing goods from apparel market, that are majorly made in China. Under the proposed tariff
rate i.e. 25% US consumers will pay more i.e. over $7 billion, which is just double that they have
paid ($3billion) for purchasing Chinese products (Impact of Trade and Tariffs on US, 2019).
Hike in price may stark for leather handbags or other apparel items, with more complex supply
chains that is – citizens will bear the burnt of increased or multiple sets of tariffs. While in
context with businesses, although tariffs relives them short-term protection to domestic industries
from shielding competition, but when consumers pay more on goods like leather handbags then
they spend less on others (Irwin, 2017). It results in propped up to the major disadvantages for
domestic companies in terms of less efficiency of resource allocation, that results in slow down
2
Illustration 1: Higher Average Rates apply to Leather Handbags and other products

the economic growth. It has led to reduce employment, lower income as well as less economic
output also. This would can be estimated through given economic impact of tariffs majorly on
$150 billion in Chinese imports -
(Source:Tax Foundation taxes and growth model, March 2018)
In context with supplied quantity of leather handbags, it has been analysed that there have
been further tariffs planned for Europe with a value of over $20 (USHSLA) only for leather
products, because of a dispute (Dixon, 2017). The USHSLA (United States Hide, Skin and
Leather Association) have raised this concerns over respective potential tariff, including its
impacts on the leather, hides and skins industry, by claiming that US exports more than 95% of
total domestic production to EU and other nations, that are shipped to key markets. Leather
handbag imports in 2018, were valued at near about $917 million (How Trump Tariffs Are
Affecting the Footwear and Apparel Sectors, 2019). But after enactment of trade restrictions or
tariff rate, the effects of it on nature of supply chain has ultimately affect US organisations that
retail foreign goods and upon US leather handbag imports by using US-based materials.
1.2 Impact of import tariff on price of US produced cars that rely on steel and market quantity of
cars
According to the article given by Nick Carey and Arunima Banerjee (2018), it has been
evaluated that due to imposed tariff rates on import materials, especially of Chinese one,
organisations that deal in automobile sectors have faced high loss of profitability on produced
cars. They are also facing the year of declining sales after increased tariff and interest rates. In
order to protect US industry, when President Donald Trump announced certain plans against
hefty tariffs on imports of materials like steel, aluminium and more, it legs down the shares of
auto makers in given sector (Morris, 2017). In this regard, as per principles of economy, when
3
Illustration 2: Impact of Trade and Tariff on US

government put plans on trade policies or increases the tariff rates, then prices of respective
commodities will definitely rise. Therefore, with announcement of 10% on aluminium and 25%
on steel imports that rocketed by the stock market, now a toll has been taken on industrial
companies, auto makers and aircraft manufacturers. In 2016, US auto industry has hit a record of
high sales on motor vehicles i.e. near about 17.23 million, but after announcement of tariff rates,
2% sales are dropped in 2018 (Auto-makers among sectors reeling over U.S. steel, aluminium
tariffs, 2018). Consumers also have ended up to pay more to purchase desired cars and trucks
because to recover increased amount of manufacturing the cars, companies have raised the price
of same as shown in below graph-
Under this conditions, shares of three major auto makers that are - Ford Motor Co. was
let down by near about 3.0%, General Motors with approx. 3.9% and Fiat Chrysler was 2.8%.
According to John Toohey (head of equities in San Antonio at USAA Asset management
company) due to declining auto sales, the tariff would be considered as hard to pass onto
customers as shown below. According to this table, average price of vehicles increases with
decrease in sales, where magnitude of adverse effects is determined by using potential Section
232 tariffs on steel and aluminium metals that are imported (U.S. Consumer & Economic
Impacts of U.S. Automotive Trade Policies, 2019).
4
Illustration 3: U.S. Consumer Price Indices for All Items-Except Food & Energy, and New
Vehicles, 1994-2018

It has been interpreted from given figure that there is a high economic harm due to
availed tariff rates, where impact can be analysed by beneath figure -
5
Illustration 4: Overview of U.S. Automotive Trade Scenarios Analyzed

6
Illustration 5: Impact of Policy

From both of the tables, the outcome of imposed tariff rates and changes in trade policies,
can be summarised in terms of declining sales of cars and other vehicles in US. Now, price of the
average vehicles that are sold in US have risen slightly more by USD 2,750 than USD 350, as
per enactment of policies (U.S. Consumer & Economic Impacts of U.S. Automotive Trade
Policies, 2019). Price effects as per correspond to vehicle sales, results in losses from near about
183k to 1.3 million.
REFERENCES
Books and Journals
Dixon, J., 2017. The Impact on Australia of Trump's 45 per cent Tariff on Chinese
Imports. Economic Papers: A journal of applied economics and policy. 36(3). pp.266-
274.
Han, E., 2018. Under the shadow of China-US competition: Myanmar and Thailand’s alignment
choices. the chinese Journal of International Politics. 11(1). pp.81-104.
Irwin, D. A., 2017. Clashing Over Commerce: A History of US Trade Policy. University of
Chicago Press.
Moon, B. E., 2018. Dilemmas of international trade. Routledge.
Morris, S. C., 2017. Trade and Human Rights: The ethical dimension in US-China relations.
Routledge.
Stolper, T. E., 2017. China, Taiwan and the offshore islands. Routledge.
Online
Impact of Trade and Tariffs on US. 2019. [Online] Available
Through:<https://taxfoundation.org/impact-of-tariffs-free-trade/#_ftn34>
7
Illustration 6: Change in U.S. Light Vehicle Sales and Prices Under Various U.S. Automotive
Trade Policies

How Trump Tariffs Are Affecting the Footwear and Apparel Sectors. 2019. [Online] Available
Through: <https://www.blcleathertech.com/news/how-trump-tariffs-are-affecting-the-
footwear-and-apparel-sectors>.
Auto-makers among sectors reeling over U.S. steel, aluminium tariffs. 2018. [Online] Available
Through: <https://www.reuters.com/article/usa-trade-companies/automakers-among-
sectors-reeling-over-u-s-steel-aluminum-tariffs-idUSL2N1QJ2K5>.
U.S. Consumer & Economic Impacts of U.S. Automotive Trade Policies. 2019. [Online]
Available Through: <https://www.cargroup.org/wp-content/uploads/2019/02/US-
Consumer-Economic-Impacts-of-US-Automotive-Trade-Policies-.pdf>.
8

PART 2 - MERGER OF VODAFONE AND TPG TELECOM
2.1 Market structure and characteristics of telecommunication industry in Australia
The telecommunication sector contributes a major role in developing economy of a
country, by offering different plans to increase number of subscribers. In Australia,
communications via electronic means like mobile, television, telephone and computer, including
broadband services have always been important, in terms of 'tyranny of distance' having a
dispersed population (McLaren, 2018). Therefore, Government concerns more on driving the
telecommunication development by announcement of National Broadband Network (NBN)
Policy in 2009. It mainly aimed to address the availability and performance of broadband, for
facilitating the structural separation. This country also has a unique structural characteristics,
which includes three main categories of products and services of telecommunication – Landline
Phone Service; Broadband Internet Service; and Mobile Phone and data services. Therefore, such
services are generally sold as a bundle which includes conservative approach.
Characteristics of telecommunication market of Australia -
Here, consumers pay the substantial price premium that includes -
 A substantial price premium by Australian households in both fixed line and mobile
services for incumbents.
 Structural issues also limited the ability for high competition in order to drive down the
market rents, because Australian market is not appeared in overseas area due to level of
price premium.
 There is a more competitive telecommunication market in Australia, where by ensuring
that regulated transmission prices are all about set at cost, spectrum for mobile carriers
has available mostly in regional areas and subsidies also do not advantage over one
operator.
 Co-location of mobile services and relatable facilities like base stations provides more
coverage and options for mobile services to consumers, due to feasibility of market where
competition is almost unlikely to emerge.
 Australian telecommunication market also develops a condition which reward
competition, such as allowed consumers for understand the quality as well as price
difference of different network operators and broadband services.
9

2.2 An economic analysis on ACCC's concerns, with rationale behind decision of Australia for
rejection of proposed merger of Vodafone and TPG Telecom
As per Tegan Jones (2019), the proposed merger of TPG Telecom Limited (ASX:TPM)
over $15 billion with Vodafone Hutchison Australia Pty Ltd (ASX:HTA), has been opposed by
ACCC (ACCC Blocks Vodafone-TPG Merger, So They're Taking Legal Action, 2019). The
reason behind this is market structure of telecommunication where three major network operators
– Optus, Vodafone and Telestra are already taken over 87% of share. While fixed broadband
market has been concentrated via Telestra, Optus and TPG with 85% approximately. Therefore,
responding towards this action both companies are going to take this matter in Federal Court.
Concerning on long term industry trends, broadband service providers like TPG roll out their
own mobile network, that helps in earning the flexibility for delivering both mobile and fixed
services at competitive price rates (Meese, 2019). According to Centre For International
Economy, intensity of competition in telecommunication market of Australia, where price
premium of broadband and mobile services are based on hedonic pricing can be analysed by -
Fixed line services –
Australia
Provider Market share
Optus 14
TPG 12
IiNet 15
Telestra 18
Mobile Phone services –
Australia
Provider Market share
Vodafone 18
TPG 10
Telestra 45
10

Optus 27
Through these economic data, it has been analysed that Vodafone is giving a tough
competition in mobile services, while TPG under broadband or fixed line services (Dwyer and et.
al., 2018). Vodafone has run its mobile phone business in Australia through joint venture strategy
with Hutchison Telecommunications (Australia) Ltd. But it has faced struggled in terms of
reliability. While in context with TPG, it has a large internet business including a low-cost
reputation, but it needs a scale for rolling out the mobile network. Along with this, households of
Australia pay a substantial price premium to Telestra for incumbent than other operators, in both
mobile and fixed line services. There are various areas in this country, where Telstra is
considered as only service provider, that results in decreasing the market share of TPG and
Vodafone too. In this regard, to enter into the market of fixed broadband services, Vodafone and
TPG both want to merge their businesses, for improving competition as well as future market
contest-ability (Botton and Lee-Makiyama, 2018). Therefore, Australian Competition and
Consumer Commission (ACCC) has felt that merger of both organisations may reduce the
competition in supply of such services, because it will lead TPG to enter as the fourth mobile
network operator after Vodafone in Australian telecommunication market. Along with this,
market structure would also needs to be settled down after the merger by competitive process. As
both TPG and Vodafone in 2018 acquired 60 MHz of spectrum within metropolitan areas and in
regional areas over 40 MHz of spectrum (Australia’s telecommunications market structure,
2015). Therefore, joint venture of TPG and Vodafone will not terminate in case of proposed
merger is not process. ACCC also wishes to see both companies to enter separately and increase
more competition in given sector.
2.3 Recommendations for type of market structure for telecommunication industry in Australia
Since telecommunication companies play a main role in developing economy of a
country, therefore, it is essential for government to concern on development of proper market
structure for increasing competition under the same field. Using an application of traditional SCP
paradigm i.e. structure-conduct-performance, it has been analysed that telecommunication
industry in Australia is highly concentrated with significant barriers. It includes capital
requirements, brand image and subscriber base, including bundled product offering and hedonic
pricing etc. influences strongly the market structure of Australian telecommunication sector. As
11

this market includes the services like fixed and wireless mobile, broadband and interconnection
services. But due to high capital intensity and economies of network size where near about 87%
is already taken by three major companies of Australia - Optus, Vodafone and Telestra. This
would restrict the new companies to enter into such a high competitive market. Therefore, it is
recommended to telecommunication industry in Australia to adopt an approach which is based
on open access network infrastructure. This model states to restructure the separation of existing
broadband policy (NBN Policy). Furthermore, government also needs to improve the spectrum
management and allocation in Australian market, especially in regional areas by updating the
ICT (Information and Communication Telecommunication) strategies. As per international
comparison, it has been analysed that there is no premium covers for any carrier over mobile
phone and broadband services in other nations. Therefore, the current NBN Policy that allows
the structural separation of Telstra only for incumbent is not replicated in other markets.
Therefore, to make more improvement and increased growth of telecommunication sector, it is
suggested to modify this policy due to high prices, unreliable services and slow speed. In this
regard, by revolutionising the way of such companies work, with more investment in network
facilities, the effective market in telecommunication can be bridged.
Fixed line broadband market share -
12

Mobile Service market share -
Premium Price for Dominant Provider
REFERENCES
Books and Journals
Botton, N. and Lee-Makiyama, H., 2018. 5G and national security after Australia's telecom
sector security review (No. 8/2018). ECIPE Policy Brief.
Dwyer, T. and et. al., 2018. Comparing Digital Media Industries in South Korea and Australia:
The Case of Netflix Take-Up. International Journal of Communication. 12. p.20.
McLaren, G., 2018. What now for Australia's NBN?: How Australia's politics, insular policies
and preference for monopolies have made Australia a broadband backwater. Australian
Journal of Telecommunications and the Digital Economy. 6(4). p.31.
Meese, J., 2019. Telecommunications Companies as Digital Broadcasters: The Importance of
Net Neutrality in Competitive Markets. Television & New Media, p.1527476419833560.
Online
13

Australia’s telecommunications market structure. 2015. [Online] Available
Through:<http://www.thecie.com.au/wp-content/uploads/2015/06/CIE-
Report_VHA_Consumer-outcomes-in-communications-markets-FINAL.pdf>.
ACCC Blocks Vodafone-TPG Merger, So They're Taking Legal Action. 2019. [Online] Available
Through: <https://www.gizmodo.com.au/2019/05/accc-oppposes-mergers-between-
vodafone-tpg/>.
14

PART 3: LABOUR ELECTION PROMISE – MINIMUM WAGE RATE
3.1 Economic theories and concepts for increasing the minimum wage rate
To reduce poverty, near about 90% countries have implemented the minimum wage as
per ILO (International Labour Organisation, 2016), with an intention to assist low income
earners. As per economist, minimum wage can be defined as the lowest remuneration, where
employers have to legally pay proper salary to workers (Rasmussen, Bray and Stewart, 2019). It
has been analysed according to the given case that Mr Bill Shorten, who has promised to raise
minimum wage rate for Australian labours if win the election. But under such situation, as per
classical economical theories (microeconomic) it may causes unemployment, because this would
cost employers to near about $8.7 billion a year. Therefore, to overcome such situation, instead
of giving employment, employers may hire limited labours only, which results in increasing
unemployment rate. While through macroeconomic perspectives, it has been evaluated that it is
indicator of employment, family incomes and inflation (Fine and Bartley, 2019). This theory
states that unemployment rate shows the proportion of jobseekers who are not able to find a good
work. So, minimum wage shows the employment rate of working aged people. Under this
situation, it is suggested to Mr Bill Shorten to develop new trade policies so that higher export
can be increased (Lafferty, 2019). When demand from overseas market of emerging countries
like Asia, Spain and more, then to meet the same, production will also increase, which aid
employers to earn more profitability. In this regard, employers can hire more employees on
desired minimum wage rate to supply the demanded commodities (Begley and et. al., 2019). This
will lead to reduce unemployment rate and decreases the negative impact of increase in
minimum wages as well.
3.2 Impact of significant increase in minimum wage rate on Australian labour market
To analyse which economic concept is true i.e. increase in minimum wage rate will
increase employment or unemployment, an empirical study is conducted over Australian market.
Currently, there has been an increased concern on underpayment of minimum wages in
Australia, where as per 7-Eleven controversy, the court has imposed penalties with $1million.
The Fair Work Commission of Australia, which is an independent set is established under Fair
Work Act 20009, to set the minimum wages (Gans and et. al., 2018). On 1st July, 2019, they
have set the minimum wages by $740.80 per week or $19.49 an hour (Labor's plan to change
15

minimum wage to a 'living wage' revealed, 2019). Hereby, casual employees will now also get at
least a 25% loading. Although impact on low skilled or low paid labours who earn relatively less
minimum wages, is considerably much higher after enactment of given new policy (Clibborn and
Wright, 2018). But due to 10% increase in average of minimum wage has indicated that it
reduces the employment rate by 0.8% (Labor's plan to change minimum wage to a 'living wage'
revealed, 2019).
Australian minimum wage rate from 2007 to 2019 -
From the above record, it has been evaluated that there is already an increase in minimum wage
rate in Australia (A Guide to the Australian Minimum Wage for Employers, 2019). So, under
such case, if any person who is participating in election and give commencement to increase
minimum wage rate then it would impact on labour market both in negative and positive manner,
as illustrated below -
16

17
Illustration 7: Significant increase in minimum wage lowers employment and
raises unemployment
Illustration 8: Effects of minimum wage

From first graph, it has been analysed that when minimum wage rate increases then it
would become harder for labours to find more job, that leads to increase unemployment. While,
from second graph, it shows that the same results in creating workers satisfaction that will help in
enhancing productivity of them at workplace. This will help employers to offer better quality of
products and earn more profitability, so that amount of cost of production that raises due to
increase in minimum wage rate can be recovered.
3.3 Illustration on how significant increase in minimum wage rate on demand, supply, price and
quantity for a normal good in Australian economy
To understand, how increased minimum wage rate on demand and supply, price and
quantity for a normal good can impact on economy, some illustrations are given below in context
with Australian market -
18

The given figure represented the supply and demand for labour within production of a normal
good, where supply curve is given by SS and demand curve by DD. It is evaluated from this
figure that the demand of labour is negatively sloped in production of any good due to two main
reasons. First one – a significant rise in wage rate will increase the cost of production as well,
that results in enhancement of selling price also. Under this condition, consumers will tend to
buy less that directly impact on supply and demand curve of particular commodity negatively.
So, to overcome from this situation, employers will use less labour. Another reason is that when
rise in wages makes labours more productive so, employers may substitute capital for labour. In
this regard, firm will use less labour to produce the output.
From both of these figures, it has been analysed that when price of a product increases
then demand of the same will decrease. It directly impact on market equilibrium where a rise in
equilibrium price will result in decreasing the equilibrium quantity.
19

From this illustration, it has been evaluated that increase in minimum wage directly effect on
aggregate employment in Australian economy. The labour will displaced by minimum wage rate,
in order to go to bid down wages for obtaining employment.
REFERENCES
Books and Journals
Clibborn, S. and Wright, C. F., 2018. Employer theft of temporary migrant workers’ wages in
Australia: Why has the state failed to act?. The Economic and Labour Relations Review.
29(2). pp.207-227.
Lafferty, G., 2019. Book review: Andrew Stewart, Jim Stanford and Tess Hardy (eds), The
Wages Crisis in Australia: What it is and what to do about it.
20

Fine, J. and Bartley, T., 2019. Raising the floor: New directions in public and private
enforcement of labor standards in the United States. Journal of Industrial Relations.
61(2). pp.252-276.
Rasmussen, E., Bray, M. and Stewart, A., 2019. What is distinctive about New Zealand’s
Employment Relations Act 2000?. Labour & Industry: a journal of the social and
economic relations of work. 29(1). pp.52-73.
Begley, P. and et. al., 2019. Evidence-informed or value-based? exploring the scrutiny of
legislation in the UK Parliament. The Journal of Legislative Studies. 25(1). pp.1-20.
Gans, J. and et. al., 2018. Principles of Economics: Asia -Pacific Edition, 7th Edition.
Online
Labor's plan to change minimum wage to a 'living wage' revealed. 2019. [Online] Available
Through:<https://www.theguardian.com/australia-news/2019/mar/26/labors-plan-to-
change-minimum-wage-to-a-living-wage-revealed>.
A Guide to the Australian Minimum Wage for Employers. 2019. [Online] Available
Through:<https://squareup.com/au/en/townsquare/minimum-wage-australia>.
21