Unemployment and Minimum Wage
An unemployed individual is someone actively searching for work. It is not everyone without work on the whole.
Types of Unemployment
- Frictional: Short term, voluntary transitions between jobs
- Structural: Mismatch between worker skills and job needs
- Cyclical: Due to economic downturns
- Seasonal: Linked to seasonal job demand
What is an Ideal Rate of Unemployment?
- NOT 0%
- Implies no supply or demand for labor – no labor market
- No employee turnover, no ability to seek new jobs, or maintain
- Correct answer: the Natural Rate
- Allows individuals to move up, firms to filter talent, innovation, and individuals to seek new jobs
- Equals frictional + structural unemployment
- At natural rate → economy is considered to be at full employment
Minimum Wage
The minimum wage is the legal lowest wage that can be paid to workers, generally put in place to ensure basic standards of living.
Use in Round
| Argument | Strength + Analysis | Rebuttals |
|---|---|---|
| “Increasing minimum wage solves for poverty” Link: Lowest wage ensured wage floor + higher purchasing power for lowest class |
Generally quite weak because ignores implications on unemployment. Can fall on judges’ personal beliefs + economics education. However, there is a lot of data that show smaller increases have benefits. Also works for economies such as the US where unemployment is not really an issue. | [look to argument 2] increasing minimum wage has potential to increase unemployment. Increasing minimum wage can also lead businesses to pass costs off to consumers, leading to inflation. |
| “Increasing minimum wage increases unemployment” Link: Firms hire fewer workers due to limited funds |
Depends on how it is run. Can be technically true, however seems unintuitive to the lay-judge so relies on how well you can break it down. The market for labor itself can be represented by its own supply/demand graph. If the wage is set above equilibrium, interference decreases purchasing power. This will differ for different economies. Strong economies such as the US don’t struggle with unemployment so can generally afford to raise minimum wage to an extent. However, if unemployment is already an issue, raising the minimum wage can exacerbate the issue. | [look to argument 1] minimum wage can set basic standards of living, especially in wealthier economies with low unemployment. |
| “Automation accelerates when minimum wages rise” Link: Automation technology can become more cost-effective than labor |
This is a more complicated argument to run and judges can tend to be more skeptical. Can be spun both positively and negatively. Can be technically true, especially for certain sectors where the technology exists or innovation is high. There is also the added strength of incentive for innovation increasing to capitalize on increased demand for technology. However, this argument is quite technical and depends on knowing the specific industry quite well. | Can impact turn to imply either innovation good (lower costs of goods) or automation increases unemployment (increased poverty) |