pro and con of the three issues about the effectiveness of SS policies by Lavonne Zhang

The debate over minimum wage

lavonnez2025_1 — 2024-05-31 06:35:29 UTC

The market-based policies:

reducing the minimum wage reduces unemployment
- ↓the cost of production for firms
- ↓wages for low-skill workers

However...

Many economists:

worker's wage > equilibrium wage --> workers work harder --> ↑ labour productivity (the output produced per worker).
↑labour productivity --> ↑firm's demand for labour --> ↑employment --> higher wages

2024-05-31 06:41:24 UTC

Pros:

Households and firms may have more disposable income or profit after tax to be put in savings or investment.

Cons:

Tax cuts have both demand side and supply side effects strength of supply side effects may be small compared to the impact on AD which ultimately means being a demand side policy
People may decide to work less and relax more for leisure if they have more disposable income as they can use their extra income
Tax cuts may not affect saving and investment because they may use their after tax income to consume more
It is difficult to detect which policy (demand side or supply side) had worked to increase potential output

2024-05-31 06:44:11 UTC

Supply-side policies → increase potential output.
Are interventionist or market-based policies more effective?
Supporters of interventionist policies argue...
- The government can provide targeted support to industries with the highest potential for growth → the market is unlikely to do the same.
- Many success stories (unlike market-based policies) → the Asian Tigers.
Supporters of market-based policies argue...
- Government interference may lead to inefficiencies and resource misallocation.
- Less efficient outcomes due to political pressures.
- Interventionist policies rely heavily on government spending → opportunity costs and high taxes.