Impact of Increased Minimum Wage on Labor Market and Cost Functions

Running head: BUSINESS FINANCIAL SYSTEMS 1
Business Financial Systems
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BUSINESS FINANCIAL SYSTEMS 2
Business Financial Systems
Part I:
Q: Using supply and demand analysis (Burkett, 2006, Chapter 1), evaluate the potential
impact of raising the federal minimum wage to $12.
A: A Large supply of the wages leads to decrease in the number of products during the short
term in the labor market. This is an indication that the companies will dig deep into their
accounts to ensure that they meet the cost of the additional wages. And will continue to decline
until they bottom out at $12. Consumers and producers interact through competing motivations
to arrive at a price and quantity for a particular product. This is determined by the impersonal
forces of the market. The market price is defined as the price at which the demand is equal to the
supply. The demand for workers will start declining immediately. As the demand continue to
decrease, the supply will continue to increase in the labor market. This will cause the state of
equilibrium not to be achieved. Thus, this state of imbalance will cause the wages to start falling
to ensure that everybody gets an opportunity to earn a living in their areas of specialization. The
market will continue having a large number of experts who are not being utilized (Rani, Belser,
Oelz, & Ranjbar, 2013). To encourage the employers to hire the experts, the wages must fall or
allow big discounts for the services offered.

BUSINESS FINANCIAL SYSTEMS 3
From the above graph presentation of the law of supply and demand, it shows that there should
be a equilibrium that should be arrived at each an every time. The demand of skilled labor will
continue to decrease which means that for the equilibrium to be realized, the supply of the
workers will have to go up (Burkett, 2006). An option to this imbalance will result to the
companies or the employers seeking for unskilled labor to ensure that the there is a reduced cost
of operation as wages. This will in one way or another affect the performance of the
organizations in the long run.
Part II:
Q: Demonstrate the impact that an increased minimum wage may have on the cost
functions (Burkett, 2006, Chapter 2) of firms that mostly hire low skilled workers.
In the country, the labor market selection of low skilled specialists varies from organization to
organization. In the case of the small organization they not employ high end experts but in the
need of their services, they outsource for the workers since there is organization with a group of
employees which are formed to handle various activities of the labor market (Giuliano, 2013).
All these organizations in the labor market will have a selection process that is aimed ensuring
that there is the engagement of the most competent workers on board from the low skilled
workers. In the selection process, there are factors that are considered. The major consideration
factors include education levels, the skills, career development and the levels of experience
which the context of the wage bill increase, it becomes irrelevant. By default, this will result in
an increased demand of the low skilled workers which will definitely outweigh the supply
available. Apart from the supply and demand, the cost functions will be affected through the
performance of the low skilled workers. The low skilled workers are expected to deliver their
services as experts and they must be trained for them to meet the threshold. The legal procedure