Impact of Minimum Wage Increase on Business Financial Systems

This assignment analyzes the potential effects of raising the federal minimum wage to $12, as proposed by the Obama administration, using microeconomic principles. The analysis begins with a supply and demand perspective, demonstrating how an increased minimum wage functions as a price floor and its immediate impact on the labor market. It then examines the influence of the wage increase on the cost functions of firms, particularly those employing low-skilled workers, considering factors like labor supply and demand dynamics, and the impact on business operations. Furthermore, the assignment discusses the effects of an increased minimum wage on labor supply, considering the expectations of both employers and employees in terms of salaries, benefits, and worker motivation. The paper also includes a section discussing Hoffman's work on empathy, justice, and the law, drawing connections to the effects of minimum wage increases on both organizations and employees. The analysis incorporates relevant references and demonstrates an understanding of microeconomic concepts in the context of business financial systems.

Running head: BUSINESS FINANCIAL SYSTEMS 1
Business Financial Systems
Student’s Name
Institutional Affiliation

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.

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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

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for the selection process should be applied before, during and after selections are made. The
process starts when a vacancy is made public and become subject to applications. After
applications, shortlisting of the most appropriate candidates is done. Before interview takes place
to determine the competency of individuals, the shortlisted candidates are expected to know the
organization in details regarding the regulations and working conditions associated with the
organization. The knowledge of the organization is to ensure that before one is made a successful
candidate for the position advertised a decision would have made. After the interview is
conducted, the most appropriate candidates are selected and get into the organization. The above-
outlined process may vary depending on the organizations but the bottom line is that it requires
resources to ensure that the process is a success. This definitely affects cost functions of the
concerned organization.
The above graph shows how demand and supply interact to determine the market price.
Neoclassical Synthesis theory holds that the labor market may be subject to shocks which are
short term leading to pulling the market out of equilibrium. This shock pulled the market further
away from equilibrium leading to more price fall.
Part III:

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Q: Discuss the effect that an increased minimum wage will have on labor supply (Burkett,
2006, Chapter 13).
In the labor market analysis regarding labor supply, there is expectation by the employers and the
professionals too with the increased minimum wage. One of the expectations in the labor market
is the salary and remuneration by the organization. Salaries of the employees are subject to
variation due to various factors such as industry, location, company size, experience regarding
years, and the education levels. Apart from worker’s salary, there are also expectations that
organizations have the bonuses and benefits that are associated with their competence and
hardworking nature in the course of their duties. The additional wants of the workers may be
attributed to the appraisal factors that are mostly aimed at motivating more in the work.
The employers will be subjected to various disadvantages from various dimensions of career and
worker's motivation. There benefits that are offered to workers by the organizations include
bonuses, Social Security, Disability, Healthcare, Pension and time off which many at times are
dictated by the amount payed to an employee (Burkett, 2006). The benefits are mostly
determined by the role individuals to play in the organization and the commitment to duties
which in the context of increased minimum wage the organizations will have to dig deep in their
accounts. There are benefits to workers such as the pensions and social security which are
requirements from the governments which comes with an increased wage. It is required that
when an employee is employed in an organization for long term terms of service, there should be
payment of pensions and social security funds which pressurizes the organizations further
financially. Also, some of the benefits are meant for the organizations to ensure that the
wellbeing of the workers is protected and they feel part and person of the organization.
Organizations use benefits to the workers for motivation purposes. The performance of workers

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is much dictated by the organization’s way of motivations (Schmitt, 2013). There are
motivations that are goal oriented in that the more an individual performs the more the benefits
one acquires.
Part IV:
Hoffman
Hoffman writes in his “empathy, Justice, and the Law" his optimal vision of the present equity
framework and its compassion's capacity to meddle with critical choices. All together for a
perfect and reasonable framework, Hoffman asserts that our equity framework ought to be
washed down of feeling, so reason and rationale can win. Whether it be a legal hearer, judge,
cop, or non-military personnel, the unavoidable presentation to different occasions can skew
their sentiment with the intensity of compassion (Hoffman, 2011). As per Hoffman, this
compassion is unavoidable. In addition to the fact that it starts at around the age of 2, it turns out
to be so serious and infiltrates so profoundly into one's thought process framework that it
changes one's conduct past the quick circumstance. In the content, Hoffman gives the case of
Stowe's letter of the thinning out states of subjection. This letter proceeds to wind up the second
top rated book (simply after the holy book) in the nineteenth century. The empathic pain cut
profoundly into the hearts of its perusers, causing an overall reaction, which handled into a
development towards annulment. A comparative beneficial outcome can be seen in the court. For
a situation of Plessy V. Ferguson, sympathy made an all the more just instruction framework.
Sympathy can likewise adversely influence a court case, as Hoffman portrays. Indeed, it helps
give the unfortunate casualty a voice for a situation, anyway it can likewise shell eyewitnesses
with feeling, something Hoffman calls "empathic over-excitement." This makes spectators

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dismiss or abstain from tuning in to somebody because of the sheer measure of feeling. All in all,
Hoffman contends that it is difficult to respond to choices without compassion, and hence it must
be tended to and represented amid any lawful setting. The expression empathic misery is
dissipated all through Hoffman's contention, and is utilized in each segment. He utilizes the term
to portray the reaction that starts consequently when attempting to relate to somebody. Basically,
this term portrays nearly the correct inverse of sympathy. Instead of concentrating on identifying
with the person in question, the term portrays the occasionally antagonistic harm to the
individual sympathizing. This is critical to the exposition as it frequently taking in points of view
on the two sides, one of the persons in question and the other of the eyewitness understanding.
Meer & West, 2016
Apart from the impacts affecting the benefits to the organizations and the employees, it is
expected that organizations will have to reduce on the number of the employees to meet the cost
of the recurring expenditures. Retrenching the workers implies that the labor market will be
flooded with workers who will be competing. The competition will result to changes in the
amount paid as wages to maybe lower that what should be paid to a worker. The labor price fall
will first be initiated during the implementation of the law, where the employers will be decided
to reduce the prices so that the many people would be accommodated that time and later, they
would increase the prices to meet the law. Later it is hard to increase the wages unless an
equilibrium is reached. Therefore, the labor market will start making constant losses which will
reduce the performance. Also, the employers should improve the quality of the services and
products offered and invest in new designs so that the customers should be attracted to increase
returns to meet the additional costs. It will improve the sales since many consumers will like to
have such products and services. Therefore, the wage bill will increase as well as the sales

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percentage if dealt with with care. This is an indication that there are both positive and negative
impacts of the increased minimum wage and may result to. Demand and supply play a major role
in determining the market price for a certain product. High demand and less supply will lead to
the rise of prices while a low demand and high supply will lead to a fall in the prices.

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References
Burkett, J. (2006). How much will people pay for status?. The American Economist, 50(1), 80-
87.
Burkett, J. P. (2006). Microeconomics: optimization, experiments, and behavior. Oxford
University Press.
Giuliano, L. (2013). Minimum wage effects on employment, substitution, and the teenage labor
supply: Evidence from personnel data. Journal of Labor Economics, 31(1), 155-194.
Hoffman, M. L. (2011). Empathy, justice, and the law. Empathy: Philosophical and
psychological perspectives, 230-254.
Meer, J., & West, J. (2016). Effects of the minimum wage on employment dynamics. Journal of
Human Resources, 51(2), 500-522.
Rani, U., Belser, P., Oelz, M., & Ranjbar, S. (2013). Minimum wage coverage and compliance in
developing countries. International Labour Review, 152(3-4), 381-410.
Schmitt, J. (2013). Why does the minimum wage have no discernible effect on
employment. Center for Economic and Policy Research, 22, 1-28.