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ECON 102 - Policies & Their Unintended Effects Report

   

Added on  2020-03-01

10 Pages2592 Words45 Views
Running Head: POLICIES AND THEIR UNINTENDED EFFECTSPOLICIES AND THEIR UNINTENDED EFFECTSStudent Name

2POLICIES AND THEIR UNINTENDED EFFECTSPOLICIES AND THEIR UNINTENDED EFFECTSIntroductionSince past many decades income inequality in countries have been increasing or remaining stagnant. In many countries, top earners occupy a greater share, and for others there is very little rise in incomes. The condition of the low-wage workers is the worst. Income distribution is a bigger economic issue in many developed and developing companies. The need for income equality has urged governments to enter the markets and develop and implement policies that encourage income inequality. Governs have implemented policies like minimum wage policy, which sets a minimum wage for full time workers; social security policy which helps workers to plan for their retirement and gives insurance protection; and tax credit policy, through which the families living in poverty are helped by giving share of earned tax. However, these polices help some families to evade poverty but these policies do have some undesired side effects. The paperprovides an overview of thee policies in Singapore and discuses the side effects of these policies in relevance with Singapore.Minimum Wage PolicyMinimum wage policy originated in 1938 by President Franklin Roosevelt, and was then known as the Fair Labour Standards Act (FLSA). Over years the coverage of FLSA was expanded to cover major industries, and the minimum wage rate has also been raised. When a minimum wageis established by the government, the firms are not allowed to pay anything less than the prescribed minimum wage. The long term objective of the minimum wage policy is to evade poverty that exists when it is seen that the earnings obtained from paid work are not able to help people and their families manage a living, and paid workers are unable to come out of poverty.

3POLICIES AND THEIR UNINTENDED EFFECTSHowever, there are some negative effects of the minimum wage policy. The policy is said to have detrimental side effects [ CITATION Hov13 \l 16393 ]. It is said that the policy ends up doing more harm, and the victims of the side effects are the unskilled labourers. The minimum wage policy creates unemployment for the workers whose productivity falls below the minimum wage[ CITATION Hov13 \l 16393 ]. The consequences of minimum wage policy can be explained using the microeconomics theory of demand and supply elasticity. The following figure explains the consequences using a hypothetical labour market. The demand curve is DD and the supply curve is SS, and as per the theory the intersection of the demand and supply curve will determine the competitive wage Wc, and the employment is Ec. When the minimum wage is set at Wm, employment will be reduced to Em. The reduction is employment is compared with the excess supply of labour (AC). The excess supply in labour leads to reduction in employment because the working hours will be reduced shown by AB. Also, excess supply of labour is characterized by workers who come to market with an aim of earning minimum wage. When the minimum wage is established the unskilled labourers will be removed out of market as their productivity does not match the minimum wage.

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