5. Explain how the change in minimum wage will affect America’s competitiveness in the Global economy. (VC3, EQS6)

The minimum wage disrupts the normal relationship between supply and demand which results in inadequate labour ratios and consequently rising unemployment.

Explanation:

Cost of labour have become an important factor which affects economic competitiveness mostly at the macro and micro economic layers.

Existing administrative arrangements, particularly minimum wage level and average wage ratio, are one of the limitations that needs to be taken into consideration when analysing labour costs.

In the US Senate a drastic 40 percent increase was voted to raise the federal minimum wage from $5.15 to $7.25 for two years.

On 1 January California will increase the minimum wage rate by $1 ($12.00 an hour for workers with or without a 25 and $13.00 an hour for employers with a 26 or more employees), whereas in Washington it will continue at the highest government level of $13.50 an hour.

Many states continue to earn at the bottom of the spectrum; many states have faster federal wage levels, and others have a higher increase. Georgia and Wyoming have the lowest minimum wage level at $5.15. However, many employers and employees would have been subject to the higher federal minimum wage rate of $7.25 per hour.

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