Minimum Wages and Job Subsidies

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Microeconomics: Theories and Applications
Lecturer: Eliot Li
Ma Chuen Yuk Calvin (10553569)
Tsang Cheung Yat (10554388)
Tong Ka Chi Kelly (10555969)
Wu Kwan Yee (10555995)
Man Ka Man (10548104)
3 December, 2012

The Debates about Market Intervention: Minimum Wage & Job Subsidies

Summary. This paper discussed two types of market intervention, Job subsidies and Minimum Wage. These two kinds of interventions will be discussed in both Hong Kong and International in two area, efficiency and equity. By summarising the arguments to find out the effects of minimum wage in both efficiency and equity, analysing the statistics and journals to find out if it is support to the reality.

INTRODUCTION In a free market, the equilibrium price and quantity are determined by the market demand and supply. With different government interventions, the market equilibrium price and quantity transacted will have different changes. Like price floor and subsidies, these interventions are very common and usually they are aimed to achieve political or economics objectives. This report mainly focuses in Hong Kong and minimum wage will first be discussed then will be the job subsidies.

Part I - Minimum Wage

1Introduction of Minimum Wage

1.1Introduction of General Minimum Wage

The definition of the Minimum wage, from Wageindicator.org :The minimum wage is the lowest wage rate a worker should be paid. As in a free market, the wages is determined by the supply and demand, for country that wanted to control the minimum wage rate of the labour market, minimum wage law and regulations have to set by the government but sometimes the minimum wage rate may set lower than the wage rate determined by the market, then the minimum wage set will be ineffective.

1.2Purpose of Minimum Wage
The general purpose of the minimum wage is to keep pace with the inflation and the rising cost of living. For some territories, like Hong Kong, imposing minimum wage to narrow the income gap of the society, RTHK the pulse (12/112010): Mr Matthew Cheung Kin-Chung, GBS, JP, Secretary for Labour and Welfare (2010), says the aim of the statutory minimum wage is to protect grassroots workers.

2Minimum Wage in Global and Hong Kong

2.1Introduction of Minimum Wage in Global
There are about 197 countries and territories have imposed minimum wage to protect the workers from treating unfairly. In different countries or territories, the methods of imposing minimum wage are different. For some country like the US and Canada, their minimum wage is set by different States or Jurisdiction, but some like Japan, their minimum wage is categorized by the industries and for United Kingdom, the minimum wage is determined by different age group and the sophistication of work. For Hong Kong, the government imposed a general minimum wage to the labour market.

2.2Introduction of Hong Kong Minimum Wage
Labour Department (2010):The Statutory Minimum Wage provides a wage floor to protect grassroots employees. It becomes effective on 1st May 2011 and the initial minimum wage is $28 per hour. The minimum wage applies to all employees. If the employers fail to pay the minimum wage to the employees, The highest prosecution is to a fine of HKD$350000 and go to jail at most for 3 years.

2.3Impacts of Minimum Wage in Global and Hong Kong

2.3.1Efficiency
As minimum wage is an market intervention, the efficiency of the marketwill then be affected. There are serval studies that show the minimum wage can improve the efficiency of the labour market:

3 Impact of the National Minimum Wage (n.d.): “There are several ways in which the minimum wage can affect firms’ productivity. Some, such as changes in work practices, investment in training and skills, innovation and management attitudes, are positive and increase efficiency. “ the above statement...
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