4.1.6 The labour market Flashcards
Explain the Demand for Labour + Marginal Revenue Product Theory (MRP).
- Firms demand labour, individuals supply it.
- D for L = S for L (equilibrium WR + equilibrium Q of workers).
- Demand curve for L shows how many workers firms will hire at any given wage rate over a given period of time.
- Demand for L is a derived D- comes from D for goods + services.
- Firms base D decisions for L on marginal revenue product (MRP)
- Marginal Revenue Product (MRP): extra revenue generated when an additional worker is hired.
- MRP = MPP (Marginal Physical Product= P x MP) x MR.
- Inverse relationship between W + Q of workers.
Define the Demand For Labour.
How many workers an employer is willing + able to hire at a given wage rate in a given time period.
Explain the Labour Demand Curve (Market).
- Inverse relationship between WR + Q of workers.
- In SR due to law of diminishing returns.
- In LR at higher WR firms think L isn’t as cost effective + its more cost effective to employ cheaper capital relative to L. (Q of workers decreases at higher WR.)- down to substitutability between L + capital in LR.
- W go up- contraction of LD (Q3) (fall in Q of workers).
- W go down- extension of LD (Q2) (increase in Q of workers) Firms more willing + able to employ at this WR.
State + explain the criticisms of MRP Theory.
- Productivity: difficult to measure in certain industries (e.g. teaching profession- output teachers produce isn’t marketed- no P of it).
- Teamwork Makes It Diff To Measure Individual Productivity: if individuals are working in teams- producing output as a team.
- Self-Employed: assume workers are payed according to their MRP, but self-employed don’t pay themselves according to their MRP- distorts/goes against theory that workers are payed according to MRP.
- Imperfect Labour Markets: MRP theory assumes labour market is perfectly competitive. May be trade unions bargaining for higher W- may have nothing to do with MRP of workers.
State + explain the Labour Demand Curve Shifts.
LD curve shifts irrespective of wage.
* Price: change in final P of product L is making (e.g. if P of product goes up, MRP increases- D curve shifts right).
* Demand: Change in D for final product: if increases, LD increases (as its a derived demand)- shifts right.
* Productivity: change in L productivity: if increases, increases LD- shifts right.
* Capital: change in P of capital: in LR all FOPS are variable (firm can either hire more workers or hire more capital- substitutable) if P for capital decreases, maybe LD will decrease. Tech has potential to replace human workers (e.g. robots can perform tasks such as welding + surgery, AI being used to develop self-driving cars.)
State + explain the determinants of the elasticity of demand for labour.
- Substitutability of Capital For L: more substitutable capital is for labour, the more W elastic LD will be. If W rise, firms can reduce the number of workers + employ more capital. If substitutable, D for L is elastic, vice versa.
- Elasticity Of D For Final Product: if inelastic + W go up, firms wont respond by cutting workforce significantly/reducing LD because they can pass on higher C via higher P (thus LD is inelastic).
- Cost of Labour As % Of TC: greater LC is as % of TC- more W elastic LD will be.
- Time Period: in LR all FOPS become variable- much more easier to bring in capital- LD becomes more W elastic in LR.
Define the elasticity of labour demand.
- Measures responsiveness of labour demanded given a change in wage rate.
Define the Labour Supply.
- Measures hours that people are willing + able to work at a given wage rate.
Explain the income effect + the substitution effect.
Individuals have to make a key choice between work + leisure (i.e. how to spend time)- one is opportunity cost of another.
* Income Effect: rise in income as wages rise (incentive to work more- positive income effect) but with potential of individuals reaching a target income (i.e. could potentially work less to reach target income- negative income effect). Thus can be positive or negative.
* Substitution Effect: as wages rise, opportunity cost of leisure time increases always providing an incentive to work.
State + explain the Labour Supply Curve Shifts.
- Wage On Offer In Substitute Occupations: if really high, a lot of workers in occupation will leave + work in other profession where W are hire- shifts S curve left.
- Barriers To Entry: (e.g. minimum entry requirements, skills, qualifications, e.t.c.) the stricter requirements become, less SL there’ll be in that industry- shifts S left. (e.g. medical industry- becoming a doctor)
- Non-Monetary Characteristics Of Job: (e.g. health-care benefits, education benefits, good pension plan, working hours, e.t.c.) More non-monetary benefits, more LS will shift right.
- Improving Occupational Mobility Of Labour: shifts S right- if more workers gain qualifications/skills to enter a given profession, increases S in that profession.
- Over-Time: ability of workers to choose overtime- increases SL- shifts S right.
- Size Of Working Population
- Value Of Leisure Time: if increases, SL shifts left.
Define the elasticity of labour supply.
- Measures responsiveness of labour supplied given a change in wage rate, in a given time period.
State + explain the determinants of the elasticity of supply for labour.
- Nature Of Skills Required In Job: greater skills / more specific skills required (i.e. harder it is for those not already in profession to take jobs in profession) more inelastic supply tends to be.
- Length Of Training Period: longer length period is, less likely those outside profession are going to want to take jobs- even if WR goes up. Makes labour supply very wage inelastic.
- Vocation: (e.g. professions like teaching, nursing) all have vocational elements. Don’t just do the job just for monetary benefit, thus less responsive to changes in W (wage inelastic), in comparison to people in other professions where vocational elements don’t exist as much.
- Time: in SR- immediately after W change don’t see much impact on Q supplied of L. Due to a lot of people being required to give notice, take time to adapt to W changes, e.t.c.) Tends to be quite inelastic. However, in LR tends to be more elastic.
State + explain the characteristics of a perfectly competitive labour market.
- Large Number of Potential Workers + Employers: lots of firms willing + able to hire workers + huge number of workers looking for jobs.
- Labour Is Homogenous: assume there’s no differences in skills + qualifications between workers. Assume all workers have skills + qualifications required for any job- labour is perfectly mobile.
- Perfect Information: of market conditions- for firms + workers. For workers, know going WR + for firms they know skills + productivity of all workers.
- Firms Are Wage Takers: no control over W they can offer workers. Instead take it from market (where D = S). No incentive for firms to offer a higher WR than that, as all workers are homogenous- thus would C them more than MR would bring in. No incentive to offer workers WR below market because workers will go to a different firm which offers the WR- which is higher.
- No Barriers To Entry/Exit: for workers- assume there’s no extra skills/qualifications needed to take job. No barriers to exit either- free to leave the job- no need to hand in notice.
Explain wage determination in a perfectly competitive labour market.
2 Key Assumptions Made:
1) Firms operating in a perfectly competitive L market.
2) Firms operating in perfectly competitive product market. (Firms are P takers + W takers).
* Firms assumed to be in SR- experiencing law of diminishing marginal returns
* As number of workers increases, figures initially rise + then start to fall.
* Firms looking to maximise revenue from workers will make efficient employment decisions + decided to hire workers up until MRP = W (MCL).
State + explain the labour market imperfections.
Tell us why W differentials occur.
* Labour isn’t homogenous: all workers are different + have different MRPs, therefore W they get can be different. Might be some professions where workers aren’t suitable to take that job- thus supply of L can be different in different markets, affecting W rage- allowing for W differentials. Discrimination- different workers paid different W.
* Non-Monetary Considerations: in real-world, more than just W which depends on whether individual will take job. Consider non-monetary features of job (e.g. pension plan, company car, holidays available, potential for promotion, overtime, flexibility of working hours, e.t.c.). Therefore if non-monetary considerations are fantastic- expected there’d be a large amount of workers in industry- driving down W. If working conditions aren’t as good, there’d be a lack of S in those industries- higher W (compensating W differentials).
* Labour Isn’t Perfectly Mobile: often isn’t occupationally mobile- not all workers have same skills/qualifications/productivity (e.g. certain professions where qualifications required exclude a lot of workers). Restricts LS, pushing up W significantly. Might be regional variances in W- might persist due to geographical immobility of L- workers may not want to move to take a job, even if W is higher. Thus, LS is restricted + W can stay different for persistent periods of time. Lack of perfect knowledge- individuals may not know what W are in diff positions.
* Trade Unions + Supply Restrictions: TU bargain for higher W- larger the TU, more bargaining power to ask for higher W + distort perfectly competitive market outcomes + push up W. In comparison to industries where TU don’t exist- leads to W differentials.
* Monopsonies + W Setting Ability: 1 dominant employer in given profession that employs large chunk of workers in industry- have W setting power- may use to drive down W. Thus, in that industry, W may be lower, in comparison to other industries where there aren’t monopsonies existing. Big reason for W differentials existing.
Define a monopsony.
- Sole employer of labour in a given industry.
- Example: teachers + nurses in UK- employed by state- dominant employer.
State + explain the characteristics of a monopsony.
- Wage Makers: set wages- have significant buying power.
- Maximise Revenue From Workers: by hiring workers up until MRP = MCL
- Employment: employ workers where MCL = MRP. Significantly reduced in comparison to competitive markets.
- Wages: WM. Significantly reduced in comparison to competitive markets.
- Lower W compared to MRP- greater monopsony power that exists in that market.
- Very inefficient- distorting efficient L market outcomes.
State + explain the interventions reducing monopsony power of employers.
- Minimum Wage Laws: setting a legally-enforced pay floor in labour market. When enforced, can help to ensure that workers are paid a fair wage, even in industries where there’s monopsony power.
- Regulation + Laws: (e.g. allowing trade union representation, equal pay legislation, employment protection laws, e.t.c.)
State + explain how monopsony power can lead to labour market failures.
- Lower Wages: in monopsony, employer can set wages below competitive equilibrium level because they are primary buyers of labour. Can result in lower W for workers, leads to underpayment + reduced standard of living for employees.
- Reduced Unemployment: monopolistic employers may also choose to hire fewer workers than they would in a competitive labour market. Results in higher levels of unemployment/underemployment.
- Diminished Job Quality: monopolistic employers may provide suboptimal working conditions, fewer benefits, + less job security. Negatively impacts well-being + job satisfaction of workers.
- Economic Inequality: monopsony power can exacerbate income inequality as concentrates bargaining power with employers, leaving workers with less ability to negotiate higher W. Leads to increase in working poverty + rising claims to welfare state.
Define a Trade Union.
Trade Union: organisation with lots of different workers, that bargain especially for higher W, but also for better working conditions (collective bargaining).
* Assume ‘closed shop’ TU- other TU don’t exist, 1 TU has all workers behind it- TU becomes monopoly supplier of L.
* TU controls SL at given WR.
* 2022: 6.25 million people registered as members of TU.
State + explain how wages + employment are affected by Trade Unions in competitive labour markets.
- Wages: now higher- increased compared to competitive outcomes.
- Employment: D for workers has fallen (QL to QTU). WR of WTU causes unemployment (excess S of workers.) Inefficient outcome.
- Raising C for firms.
Evaluate the use of Trade Unions.
- TU In A Monopsony Labour Market: may make things better- higher W- improve W by moving them closer to competitive outcomes + increasing employment.
- Strength Of TU Power: in real-world ‘closed-shop’ TUs are illegal, so TUS may not have same strength assumed. Measure union density- proportion of workforce in given profession that are part of a given TU- greater % greater TU power- greater bargaining power + control of LS.
- Success Determined By Union Mark Up: difference in W- between what workers are getting who are part of TU + workers in a similar profession who aren’t in TU- bigger difference- bigger success of TU.
- Real-World Evidence Proves Limited Power Of TUS: strict legislation (since 1970s) against TUs- closed shop TU now illegal- significantly reduces power of each TU, limits union density as workers now have to be spread around diff TUs. Legislation reducing how easy it is so strike- only happen if at least 75% members in TU agree to strike, only strike against own employer. Restructuring of UK economy- limited power of TU- UK moved away from manufacturing + heavy industry related jobs towards more service sector jobs- lots of diff employers- makes organising TU activity difficult. Part-time work much more prevalent- hard to organise TU activity around it. Since globalisations taken over- competitive pressures increased dramatically- firms now have more power to reject whatever TU are demanding.
- Over last 2 years, there’s been increases in industrial action by TU (e.g. rail, nursing, teaching, ambulance, e.t.c.)
Explain why Trade Union membership has declined in the UK.
- Union membership peaked in 1970s when over 13 million workers were members of TUs.
- Restructuring of economy: UK moved away from manufacturing + heavy industry related jobs towards more service sector jobs- lots of diff employers- makes organising TU activity difficult. Part-time work much more prevalent- hard to organise TU activity around it.
- Legislation: strict legislation (since 1970s) against TUs- closed shop TU now illegal- significantly reduces power of each TU, limits union density as workers now have to be spread around diff TUs. Legislation reducing how easy it is so strike- only happen if at least 75% members in TU agree to strike, only strike against own employer.
- Globalisation + FDI: foreign owned firms less accommodating of unions. Since globalisations taken over- competitive pressures increased dramatically- firms now have more power to reject whatever TU are demanding.
- Example: percentage of employees who are members of union in UK fell from 32% in 1995 to 23% in 2018.
State + explain how wages + employment are affected by Trade Unions in monopsony labour markets.
• Wages: increased from WM to WTU- closer to competitive market outcomes. Monopsonist has to take WTU- assuming they have strong bargaining power + union density. Thus, S curve becomes horizontal- monopsonist becomes W taker (also ACL + MCL curve)- each worker being paid same W of WTU- thus MCL curve now constant. Beyond the horizontal line, if monopsonist wants to employ more workers, need to increase W to attract workers into industry- thus S curve reverts back to original S curve (STU = ACL). As soon as monopsonist increases W beyond horizontal line to attract new workers- increasing W for everyone. Thus, MCL reverts back to original. Vertical discontinuity in TUMCL curve. Monopsonist still hires workers up until MRP = MCL (now QTU). Maximises profits monopsonist brings in from hiring workers.
• Employment: increasing from QM to QTU- closer to competitive L market outcomes.
• Improves efficiency in monopsony controlled L markets- bargains for hire W + increases employment.
Define the National Minimum Wage (NMW).
- A legally-enforced pay floor in labour market.
- Employers can’t pay below hourly minimum wage for employees of a certain age.
Explain the impact of a national minimum wage on unemployment.
- Evidence on NMW in UK finds there’s been no net impact of employment reductions due to min W.
- Goes against theoretical analysis of impact of min W.
However, there’s evidence that some firms have: - Higher C + lower profit margins.
- Raised P to recover higher C.
- Changed workforce structure- increased use of automation, increased recruitment + retention of older more highly skilled workers.
- One reason given for there not being a reduction in employment is that many labour markets are imperfect where firms are paying below MRP of L + so min W leads to firms paying workers closer to their MRP. Firms can afford to give increases in W.
- If LD is wage inelastic, higher minimum wage W will cause only a limited contraction on level of LD.
State + explain the advantages of a national minimum wage.
- Poverty Alleviation + Reduces Wage Differentials: reducing poverty + gap between rich + poor.
- Incentive To Work: especially for those choosing to be inactive (voluntarily unemployed). Boosting labour force.
- Fiscal Benefit To Gov: if more people now incentivised to work, gov doesn’t have to pay as much in terms of benefits + can receive more through tax rev. Can use fiscal divined to spend via using other policies to help redistribute income at some time.
- Boosts Productivity: through a morale boost. If people are paid more, they’re likely to be more productive.
- Incentive For Firms To Boost Human Capital: for firms who have to bare higher C of employing workers, there’s incentive to boost human capital of workers that work for them. If having to pay higher W to staff, may as well make most of staff + improve their training/productivity/skills.
- Counter Monopsonist Employer: by gov imposing a NMW, W now under a monopsony employer will be higher + potentially E may be higher.
State + explain the disadvantages of a national minimum wage.
- Unemployment: real wage/classical unemployment- by imposing a W greater than competitive W, creates excess S of L. However, depends on elasticity- more inelastic D + S is, less impact min wage has.
- Youth Lose Out Most: less likely to have experience/skills/productivity to justify getting min wage- harder to find a job.
- Those Not On NMW May ask For Higher W: to keep W differential. Can increase C for businesses, bad for economy as may raise inflation.
- Cost To Businesses: may lead to them shutting down/struggling o match C + operate efficiently. Significant risk of UK economy losing competitiveness- firms that have to pay min wage + accept higher C- may translate those C into higher P.
- Regional Differences: in North of UK, NMW doesn’t need to be as high as in South (i.e. differences in C of living). Doesn’t account for regional differences.
- Hit To Gov Finances Given State Employment: if gov is employing a majority of low payed workers who would be payed NMW- gov may be hurt by implementing NMW. In UK gov employs a disproportionately large number of low payed workers who are payed NMW, thus by increasing it, gov C will skyrocket + gov finances may take a hit- with potential LR consequences.
State + explain the alternatives to reducing poverty + increasing economic welfare, rather than a national minimum wage.
- NMW isn’t necessarily the best way to tackle poverty- only reaches those in work, whereas very poorest have no job, + often no chance of getting one.
- Policies to increase skills + employability: to get people into work force- needed as much as increases in W.
- In UK, for many of the poorest its not so much WR, but hours of work available (rise of part-time work) + insecure nature of work (gig economy) that impacts living standards + economic welfare.
- Legislation to improve worker rights, conditions of work, + job security- may have a more significant impact on economic welfare in NMW.
State + explain the wage differentials for why men earn more than women.
- Women Move In + Out Of Labour Force: due to child bearing- take maternity leave + time to raise children- time where skills aren’t developing, potentially loosing key skills, not gaining any experience, will lead, ceteris paribus, to their MRP not increasing by much, or it even reducing. Thus, when they come back into work they find it very hard to obtain a higher W- in the future, earning potential is the limited. Men are more attached to workforce- don’t tend to leave labour force- thus earnings tend to be much higher than females.
- Age Of Being Economically Inactive: women that do take time out of labour force to raise children often, the age at which they leave labour force is the age at which most people push on in their professions + obtain higher W- so for women to exit the labour force at this key time + age, significantly limits their W prospects going forward.
- Differences In Education/Qualifications: argument doesn’t hold in developed countries, but could still hold in developing countries. Opportunity for women to be educated + gain same qualifications as males- in many developing countries, this opportunity doesn’t exist- thus women don’t have the same skills, qualifications, + MRP as males- males can bargain for much higher W, while females can’t.
- Women Work In Low-Paid Occupations: part-time occupations- spend more time with children- part-time work typically pays less hourly than full-time work. Service-sector work-demands for job + skills for job aren’t so high (e.g. retail) can lower W + earning potential. Public-sector work- primarily female workers- public sector workers typically paid less, as gov want to control inflationary pressure + rate at which W increase in these professions. Vocational work- teaching, nursing- W kept low, due to vocational impact. Lack of TU prescience- part-time + service sector work- harder to organise TU around them + back them- therefore TU bargaining power is limited, keeping W below.
- Increase In Supply Of Female Workers: in developed countries, easier for females to enter labour force, more socially + culturally acceptable. Drives down W, as S increases.
- Discrimination: employers may favour male workers- despite regulations preventing this.
State + explain the wage differentials for why footballers earn more than teachers.
- MRP Of Footballers Is Very High: not just because of league position of club, but in terms of merchandise revenue, television revenue, e.t.c. Can bring in huge amount of revenue from lots of diff rev streams for a club, thus MRP is huge.
- Low Supply Of Footballers: inelastic supply- to become a professional footballer, have to make grave sacrifices - time in school limited, amount of training + time- makes S of footballers very inelastic. D for footballers very high- clubs know if they get a really good footballer- benefits are massive.
- Monopsonist State Employer Of Teachers: in UK dominant employer of teachers is the state- has W setting power- UK gov always keeps W relatively low- W increases minimal, as state doesn’t want to lose control of inflation objective.
- Vocational Element To Teaching: a lot of workers go into industry not for money but because they love doing what they do. Therefore, negative compensating W differential- keeps W low.
- Reduced Bargaining Power Of Teacher Trade Unions Due To Reluctance To Strike: only time teachers are willing to strike is when it doesn’t have much impact on pupil performance. Reduces impact of TU to bargain for higher W.
- Lack Of Homogenous Footballers: all have different skills, backgrounds, e.t.c. As a result, firms will want each individual footballer because they’re different- willing to pay higher W because of the difference of each footballer.
State + explain the wage differentials for why Londoners earn more than Northerners.
‘North - South Divide’ in UK
* Restricting Of UK Economy + Different D For Labour: since 1970s, UK economy moved away from manufacturing, heavy industry specialisation towards specialising in services- especially financial services- usually in London. Whereas, manufacturing, heavy-industry jobs are in North- thus, MRP of workers up North will be lower, as D for the will be much lower.
* Negative Multiplier/Accelerator Effect: up North- falling decline of manufacturing + heavy industry sector- all workers unemployed in industries now- don’t have W potential to spend in large proportions in their economies- therefore all diff industries dependent on that spending will see a fall in D for their products. As L is a derived D, all workers in those industries may therefore become redundant as there’s less D for the products they’re selling- negative multiplier effect. Negative accelerator effect, as firms aren’t willing to I if they know the growth rates in that region/economy are falling- reduces W growth potential.
* Occupational + Geographical Immobility In North: lots of workers in North are occupationally immobile- don’t have skills transferable to take jobs down South. Workers may be geographically immobile- may have family ties, refuse to move locations- reduces migration flow expected when there are large regional variances.
* Migration Of Labour To Move Prosporous Areas Is Only Of The Most Productive Workers: migration that takes place may be only the most productive workers moving down South- most productive workers may be the ones earning the higher W up North- if they’re the ones leaving, only leaving behind the lowest paid workers- makes regional variances worse.
State + explain the wage differentials for why certain ethnic groups earn more than others.
- Minority Groups On Average Are Less Qualified: have lower MRPs- cannot bargain for higher W, employment prospects will be low, earning potential going forward will be very low.
- Lack Of Language Proficiency: reduces productivity + employability- especially in higher paid occupations (e.g. financial, legal services, e.t.c.)- keeps W very low.
- Concentration Of Such Workers In Low Pay Sectors: (e.g. cleaning, car-washing, plumbing, e.t.c.)
- Living In Poorer Areas Of Country: where D for L is low, employment prospects are low- limits W rises + earning potential- keeps W low.
- Reluctance To Migrate To Earn More: for some ethnic groups, it’s in their culture to stay close to family- forced to stay close by + accept lower W.
- Discrimination: illegal, but can still happen.
State + explain the advantages of wage differentials.
- Incentives: incentives to become educated, develop skills + qualifications, to boost productivity + MRP + access higher W professions. Also good for economy- higher productivity of labour force can reduce business C, make economy more internationally competitive, also means LR growth.
- Trickle Down Effect: free-market economists argue that high W earners spend their money- creates multiplier effect throughout economy- D for goods + services in economy will pick up + those working in industries where moneys being spent will see higher W + job creation. Gov intervention through progressive income tax systems- those earning very high W- average + marginal tax rates are higher- pay more income tax- gov can use additional rev to redistribute + provide income boost to poor.
- Encouraging Enterprise: entrepreneurs know that if they can find a way to boost their MRP, can earn an extremely high W- incentive to do so. Great for individual entrepreneur- higher W. Also good for economy- encourages LR growth- new innovation, new tech. Good for individuals on the lower end of spectrum- entrepreneurs may create jobs for them.
- Encourages Work Not Welfare: if all labour markets were perfectly competitive, then if you’re living off welfare, there’s no incentive to get off it- if you become educated, gain skills, e.t.c, you’re only going to earn what everybody else is earning in economy.
- Promotes Efficient Resource Allocation: to move where L is most productive, workers with relevant skills will move to where W are higher. Workers end up in professions where they’re productive- boost to economy.
State + explain the disadvantages of wage differentials.
- Income Inequality: bad for individuals on low incomes- face poverty, living standards are lower. Bad for economy as gov has to spend more on employment benefits, welfare spending. Can reduce growth in LR- poor have highest MPC- if their incomes are restrained, it restrains spending in economy. Whereas rich have highest MPS- if they have larger salaries, they’re not necessarily going to spend a lot of it. Social costs- higher crime rates, higher depression, higher divorce rates, greater protests- leads to negative externalities- gov has to spend more on police services, courts, health-related services.
- Trickle Down Effect May Not Occur: may not hold in real-world- high income earners may S more- multiplier benefits through spending may not occur. May send their money abroad- move money to other economies to get a greater rate of return- doesn’t generate higher W for those on lower W, doesn’t create jobs through multiplier effect. May avoid paying tax- any redistributive policy through higher T may not occur.
- Gov Solutions Limited If They Are Monopsonist Employer: (e.g. teaching, nursing, e.t.c.). Gov wont want to increase W- overshoots inflation target. Thus, W always stay relatively low- becomes hard for gov to deal with it. W variance likely to get worse not better.
Evaluate wage differentials.
- How Much Inequality: compare C + benefits. If income inequality is small, likely to be more benefits then negatives. If more relatively large- likely to be more negatives- in LR if W variances persist + get worse- negatives are a massive issue.
- Risk Of Gov Failure: if there’s a risk of gov failure- let W differences persist, even if major issues. If gov intervene they’ll raise T, impose min wage, higher unemployment benefits- may make things worse, distorts incentives (Laffer curve argument).
- SR Vs. LR: in SR there may be some issues due to income inequality. However, in LR due to trickle down effect, through entrepreneurship benefits- may be greater benefits to individuals- lower C, lower P, access to new tech, innovation, higher W (due to trickle down effect). However, SR issues (income inequality) may persist + worsen.
