Question 1: Please answer this question strictly from a pure economics point of view only. Let’s pretend that you are the employer/owner of a firm located in an area with a higher minimum wage in this shopping mall. The product you are selling is hamburger and let’s assume that the hamburger from Carl’s Junior, Wendy’s, and Burger King are exactly the same. As you know, not all workers have the same level of skills and/or productivity. Given that you now have to pay a higher minimum wage, who would you likely keep employed in your firm (would you pick the most productive or the least productive worker)? Why?Question 2: Use the economic model on price floor and strictly from this model please explain which one would be greater. Will quantity supplied be greater than quantity demanded? Or will quantity demanded be greater than quantity supplied? Why?****Remember, demand and quantity demanded are two different things just like how supply and quantity supplied.*****Question 3: Firms need to earn a profit and due to this some firms may do what with the price of their products they sell to their customers after the minimum wage was instituted? Will the firms charge a higher or lower price to their customers? Why?
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As Wage Debate Rages, Some Have Made the Shift
Restaurants in Cities With Wage Mandates Adjust Hours Work, Prices and Supplies to
SAN JOSE, Calif.—As lawmakers in the nation’s capital are mired in debate over likely
outcomes from raising the federal minimum wage, businesses hit with local wage
increases across the U.S. already are grappling with the reality.
A Carl’s Jr. franchisee in San Francisco offset the county’s higher minimum wage—now
$10.74—by using less shortening to make french fries. A White Castle in Illinois cut two
jobs to match competitors’ costs in nearby Indiana, where the mandated wage is lower.
A California pretzel maker pays different wages at mall stores that straddle two cities.
The consequences of a minimum-wage increase cut across everything from the number
of hours employees are assigned, to menu prices to how often a drive-through lane is
cleaned, according to interviews with more than a dozen businesses. The real-world
impacts can vary: Some companies had no difficulties passing along labor-cost
increases while other businesses said they might close marginal stores to pare losses.
Such adjustments are rarely captured in the now-sizzling debates over whether a
national wage increase would harm the economy or reduce poverty. But as Congress
debates lifting the federal minimum wage by nearly 40% in three steps to $10.10 an
hour from $7.25, the local mandates are proving there will be no simple way to
categorize the range of business impacts.
In part, lawmakers largely have focused on the broadest implications for the U.S.
economy. The nonpartisan Congressional Budget Office in February estimated raising
the minimum wage to $10.10 an hour would reduce U.S. employment by 500,000 but lift
900,000 Americans out of poverty.
In many cities and states, minimum-wage increases have already complicated the
budgeting calculus. Twenty-one states, representing more than half the U.S. population,
now mandate pay above the federal rate. Maryland will join them after legislators voted
for an increase Monday.
Owners elbow-deep in major and minor adjustments say they only want a level playing
field. “The problem with the minimum wage increase is that it was just in San Jose,”
said Mezcal restaurant owner Adolfo Gomez. He cut employees’ schedules and covered
the lost hours himself after the minimum wage in the city jumped 25%. “If it was the
county or state, we’d all be in the same boat.”
For businesses in San Jose, the results aren’t entirely negative. Low-wage employers in
the city have raised prices and trimmed costs, but some also report improved employee
morale and better customer service.
The Pizza My Heart chain raised menu prices 4%, to cover last year’s $2 increase in the
city’s minimum wage—now $10.15 hour—and found that larger paychecks reduced
employee turnover and drew transfer requests from workers in other cities.
“There was a lot of bluster that higher wages meant the sky was falling,” said owner
Chuck Hammers, whose sales at five San Jose locations are up more than 10% since
the wage change. “I stepped back and realized that as long as it is an even playing field,
it’s not going to affect us.”
San Jose’s wage floor jumped after a San Jose State University class project
snowballed into a successful minimum-wage ballot initiative in 2012. The effort led San
Jose to join San Francisco and Santa Fe, New Mexico, in pushing for mandated wages
above state levels. Campaigns to raise local wages are now sprouting from Wilmington,
Del., to other Bay Area cities. The push reflects the popularity of minimum-wage
increases among voters and a federal level that has been stagnant for almost five
Few places show the headaches as starkly as the Westfield Valley Fair, a shopping mall
on the border dividing San Jose and Santa Clara, where the minimum wage is $8 an
The mall’s Gap
(Links to an external site.)
store straddles the line. The law requires it to account for how long employees spend
on each side, paying them accordingly. Instead, the store gives all its lowest-paid
employees the higher wage, a spokeswoman said. Gap committed in February to
establishing a $10 minimum wage for all its U.S. workers by next year.
The two Wetzel’s Pretzels shops on opposite ends of the mall pay employees working
on the Santa Clara side a lower starting wage. Franchise owner Yvonne Ryzak rotates
employees between the locations. “That way, I don’t have employees who are resentful
that their colleagues get paid more than them,” she said.
Senate Democrats renewed their push for a minimum wage increase to $10.10 last
week, but it is unclear that a path to such legislation becoming law is certain. Jerry Seib
explains the political and ideological battles surrounding the issue.
To help offset the San Jose wage increase, she raised pretzel prices by a nickel each at
both stores. Ms. Ryzak gives her employees up to 20% of the stores’ profits each year
and predicts those twice-yearly bonuses will shrink as rising wages erode profitability.
The local increases create difficult adjustments for other businesses. Woody DeMayo,
owner of 16 Carl’s Jr. restaurants in northern California, charges $6.19 for a burger, fry
and drink combo in San Jose, but $5.99 in Santa Clara.
For his San Jose stores to make the same profit as before the wage increase, the same
combo meal would be $6.75. “That would chase off a large percentage of my
customers,” Mr. DeMayo said. He hasn’t laid off San Jose workers but has reduced their
hours, along with some maintenance such as the drive-through lane’s daily hosing, and
may close two unprofitable stores.
The reaction among San Jose employers was largely in line with a study of 288 areas
where the minimum wage differed across county borders. The research, published in
the Review of Economics and Statistics in 2010, found municipalities with higher pay
didn’t suffer job losses among low-wage restaurant workers. Nearly half of all minimum
wage-earners work in food service.
One of the study’s authors, University of California at Berkeley economist Michael
Reich, said restaurants typically avoid layoffs because modest price increases and
lower employee turnover offset the higher labor costs from wage gains.
Initial data a year after the minimum-wage increase shows the number of fast-food
workers in the San Jose-Santa Clara metropolitan area rose at a faster pace than in the
Nick Taptelis, owner of Philz Coffee in San Jose, raised starting pay at his shop to $11
an hour in January to reward employees and improve the pool of new job applicants.
He increased his staff 30% in the past year and says that turnover has decreased to five
workers a year from 15 workers. Because his employees are happier and more loyal, he
said, customer service has improved.
“Everyone’s in a good mood,” Mr. Taptelis said.
Opponents warn against using localized data to support a national policy shift. “The
nation isn’t a single labor market,” said former Congressional Budget Office director
Douglas Holtz-Eakin, president of the right-leaning think tank American Action Forum.
“The costs will be higher in other places.”
San Jose’s $10.15 minimum wage is roughly a third of the average hourly pay in the
Bay Area. That fraction nearly matches the share of the federal level to the average
hourly wage in the U.S.
Some economists say areas with higher living costs, such as northern California, can
absorb increases more easily. In Arkansas and Mississippi, the states with the lowest
average hourly pay, the effects could be quite different. More than a quarter of all hourly
workers in those states earned less than $10.10 an hour in 2012, according to the Labor
Even in suburban Chicago, with a higher cost of living than the South, an increased
minimum wage led to job losses. White Castle operates two restaurants just 16 miles
apart with nearly identical sales and demographics but separated by a state line.
Because the minimum wage in Illinois is $8.25 an hour, a dollar higher than in Indiana,
the company reduced two positions through attrition in its Chicago Heights restaurant.
Even with that reduction, labor as a percentage of sales is 29.8% at that store versus
26.4% for one in Hammond, Ind.
As a result, the Indiana store generates higher margins. White Castle won’t raise prices
at the Chicago Heights restaurant because the restaurant operates in the same market
as Hammond, a spokesman said.
The minimum wage in California will rise to $9 an hour in July. In San Francisco it has
increased every year for a decade because it is tied to inflation, making it among the
nation’s highest. The escalation has caused business owners like Bé Wierdsma to
watch costs closely.
The owner of 62 Carl’s Jr. restaurants in California, including two in San Francisco,
found filtering the shortening more frequently could eliminate waste. So he made the
practice standard across his stores.
He also instructed workers to turn off some fryers during nonpeak hours, reduced the
number of garbage pick-ups and scrutinizes staffing.
“Our business is a penny business,” he said. Overcoming higher labor costs “ultimately
comes down to pricing.”
Last year he raised prices 5% across all his restaurants, which span Fresno to the Bay
Area, and said consumers haven’t flinched. Due to those price increases, he said,
profits haven’t been hit by San Francisco’s escalating minimum wage.
Patrick Renna, CEO of boloco, a 22-unit burrito chain based in Boston, pays starting
workers $9 an hour. State lawmakers are considering raising the minimum wage to as
much as $11 an hour from $8 an hour. Mr. Renna said most of his employees earn
$11.50 an hour and that he eventually wants to bring them to $12.65 an hour—to match
what a local university identified as the livable wage for the area.
“Our mission is to positively impact the lives of our people,” Mr. Renna said. “We feel
we can do better.”
To offset labor costs, he has raised prices three times since 2010. And to maximize
staffing levels, Mr. Renna allows customers to order and pay without talking to a server,
if they choose, including through a mobile app, with online ordering and at a touchscreen kiosk.
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