COURSE CODE & COURSE NAME: CBS 1143 (Principles of Economics)

STUDENT NAME : Tamilarasaan A/L Adaikalam

STUDENT ID : CCCB-CIB 0723-0205
LECTURER : MR. Kumaran RAMAN
SUBMISSION DATE : 30 TH AUGUST 2023
1) What is the purpose of a minimum wage, and what are the potential benefits and
drawback of implementing it?

A living wage ensures that employees aren't paid a small amount in their work,
preventing them from being paid an unfairly low rate. By ensuring people earn
enough income to afford their fundamental needs, minimum pay may help boost
workers away from poverty. It serves the purpose of reducing economic disparity
along with affords low-wage workers a sense of security. Countries may boost the
quality of life for workers with families as well by proving an initial income. It could
help with purchasing for basic like a place to stay and medical treatments. One of the
biggest worries of setting an entry-level salary is the possibility of high
unemployment rates. Employers may choose to reduce their rate they are using or
lay on workers as a response to having to shell out higher salaries. This might
notably affect start-ups and small businesses with limited resources. A rise in
company expenses Businesses might have to pay additional for employees if their
hourly pay is increased. This may bring about economic challenges for small to
medium-sized enterprises at particular, and this might lead to diminished profitability
or even bankruptcy.

2) Describe the potential effects of a minimum wage increase on the following:

a) Employment: How might the change in the minimum wage affect employment
levels in both low-wage and high-wage industries?

The change in the minimum wage can have different effects on employment
levels in low-wage and high-wage industries. Increasing the minimum wage
may lead to job losses in low-wage industries. Employers may find it difficult
to afford higher labour costs and may reduce their workforce or cut back on
hiring new employees. The minimum wage can be raised, which might
increase consumer spending and help high-paying businesses. Since low-
wage employees are more likely to have disposable income, people will
probably spend more money on products and services, which will stimulate
demand and maybe result in the creation of new employment opportunities.
Employment levels in high-paying industries are unlikely to be significantly
impacted by the adjustment in the minimum wage. The rise in wages may not
have a substantial impact on these industries’ labour expenses because they
routinely pay over the minimum wage.

b) Income Inequality: Will a higher minimum wage help reduce income inequality
in Econoville? Why or why not?

No, because raising the minimum wage could lead to businesses passing on
their higher labour costs to consumers through higher prices for goods and
 services. If these price increases outpace wage increases, the purchasing
power of low-income workers could actually decrease. This would mean that
even though they earn more, their ability to afford essential goods might not
improve, thus not effectively addressing income inequality.
c) Inflation: Discuss the potential impact of a minimum wage increase on the
overall price level in the economy.
When the minimum wage is increased, it directly affects labour costs for businesses.
This means that employers have to pay higher wages to their employees. As a
result, businesses may try to offset these increased costs by raising the prices of
their goods or services. If only certain countries or regions increase their minimum
wage, it can affect their competitiveness in the global market. Higher labour costs
may make it more expensive for businesses to produce goods or services compared
to countries with lower minimum wages. This can result in a decrease in exports and
potentially impact the overall price level.

d) Business Viability: How might small businesses be affected by a minimum

wage increase? What challenges could they face, and how might they
respond?

Small businesses may face a competitive disadvantage due to larger

corporation’s resources, which can absorb the impact of a minimum wage
increase. This can make it harder for small businesses to compete and
survive in the market. A minimum wage increase can significantly impact
labour costs, leading to reduced profitability or financial strain. Some
businesses may also have to reduce employee benefits, negatively impacting
morale and retention.

3) Explain the potential challenges and opportunities for each of these industries.

a) Retail and Hospitality sector:

Large workforces are frequently used in the hospitality and retail industries, which
may result in higher labour. It can be difficult to manage and keep competent
workers, particularly in a sector with a high turnover rate. Retailers now have the
chance to develop their consumer base outside of brick-and-mortar stores thanks to
the expansion of e-commerce. Businesses may expand their reach and boost
revenue by developing an online presence and providing seamless omnichannel
experiences.
 b) Agriculture sector:

Adapting to climate change and mitigating its impacts through climate-smart

agriculture practices can create opportunities. This includes practices like
conservation agriculture, agroforestry, and water-efficient irrigation systems
that enhance resilience and reduce greenhouse gas emissions.
In conclusion, while the agriculture sector faces challenges related to climate
change, limited resources, market volatility, technological adoption, and food
security, there are also opportunities for sustainable agriculture, digitalization,
diversification, rural development, and climate-smart practices. Embracing
these opportunities can contribute to the growth and resilience of the
agriculture sector.

Reference:
https://www.ilo.org/global/topics/wages/minimum-wages/definition/WCMS_439072/
lang--en/index.htm
By J.B. MAVERICK, Updated August 26, 2023,
https://www.investopedia.com/articles/markets-economy/090516/what-are-pros-and-
cons-raising-minimum-wage.asp
By Carl Lin, Myeong-Su Yun, https://www.iza.org/publications/dp/9715/the-effects-of-
the-minimum-wage-on-earnings-inequality-evidence-from-china
Adam Uzialko, https://www.businessnewsdaily.com/8984-increased-minimum-
wage.html