Question

2. Assume free markets in your analysis of public policy proposals a and b.

1. Assume you are an elected official in the Michigan legislature, and you have to vote on a proposal to increase the minimum wage. Use free market economic theory (describe necessary concepts and assumptions and use examples, figures of hypothetical labor market situations where appropriate), and whatever you have learned that is relevant to explain to your constituents how you are going to vote and why. In your explanation provide an analysis of the economic impact (who benefits, who loses, what happens to efficiency, etc.) from the proposed bill meant to increase the minimum wage above the market wage.
2. Assume you are an elected official in the Michigan legislature who wants feedback from your constituents on whether you should support legislation in support of employer mandated health insurance. To seek their input, you hold a public forum where you explain to your constituents the case for and the case against employer mandated health insurance as you see it. Use free market economic theory and analysis to present both cases to your constituency.

Answer 1

a) Economics is the only field where things lie not in black or white but in the grey area. That is why every argument has an equally solid counter-argument. The policy, however, should be enacted taking into account the long term effect.
The minimum wage is a contentious issue in every country or state. Karl Marx had said that the capitalist system will encourage the exploitation of labor. In some cases, we can say that it is true as labor had to work on paltry wages while firms reaping huge profits. In such a scenario, the condition of the minimum wage sounds attractive but in reality, it is a disastrous idea. The wage is a function of economic forces such as supply and demand and it should be decided by the market.

If the government intervenes in the market and set minimum wage below the equilibrium price then it will be ineffective. On the other hand, if the government sets a minimum wage above the equilibrium then it will create a surplus of labor in the market.
The businesses will respond to above the equilibrium wage by reducing the number of workers. The lowering of labor means actually there will be a rise in unemployment. Further, the businesses will force the labor to fill the gap of reduced workers and that will be again exploitation. Such proposals should be rejected.

Wage Supply Unemployment increase Minimum wage set by government Equilibrium wage level Demand Number of workers employed

b) Employer mandated insurance is a good move and that should be supported as it has benefits that outweigh the cost.
People tend to be casual about their health and they do not correctly understand the benefits of health cover. Further, even if they are, in most cases they could choose the wrong plan whose benefits are worthy which is called adverse selection.
In such a case, employer-mandated health cover provides a good option for both sides. The employer can negotiate the lower premium because of the number of employees. The insurance company also can have certainty about the payment of premium as it is deducted directly from the salary.
The employee views this as a good gesture from the company as it is concerned about employee health and it could act as a morale booster. This is turn increases loyalty and productivity in the company. The spread of health cover and the sharing of the burden means a higher level of welfare and benefits in society.
This proposal should be accepted.