Saturday, February 8, 2014

Module 1


1.  Should the minimum wage be increased annually at the rate of inflation? (Or alternatively, to $15.00) 

(2013) 1.6% 2.0% 1.5% 1.1% 1.4% 1.8% 2.0% 1.5% 1.2% 1.0% 1.2% 1.5% 1.5%(avg.)

(2012) 2.9% 2.9% 2.7% 2.3% 1.7% 1.7% 1.4% 1.7% 2.0% 2.2% 1.8% 1.7% 2.1%(avg.)

I took a statistical approach to answering this question and believe that the minimum wage should be increased annually at the rate of inflation.  The above percentages show inflation rates for each month over the last two years, with the last value representing the average, according to the Bureau of Labor Statistics.  For example, take the average inflation rate for 2013.  The minimum wage for both years is $7.25/hr.  For the minimum wage to have been increased at the rate of inflation would have equaled .11 raising the rate to $7.36/hr. and .04 raising the rate to $7.40/hr., respectively.  If we look at a greater number of historical inflation rates as well as minimum wage rates we can statistically determine whether increasing the minimum wage at the rate of inflation has either a significant or negligible effect.  Taking into consideration the last ten years (2003-2013), the minimum wage has increased three times: starting at $5.15 from ’03-’06 to (1) $5.85 in ’07, to (2) $6.55 in ’08 then to (3)$7.25 from ’09-’13.  The overall wage increase was $2.07 ($7.25-$5.30) and the average inflation rate was 2.78%.  Although there was a steady increase in the minimum wage, the average inflation rate over the last ten years was neither higher nor lower than any value by a large standard deviation.  This leads me to believe that as long as inflation rates fluctuate, which they certainly always will, it will offset by how much the minimum wage will rise.  Opponents of this issue say raising the minimum wage will not reduce poverty, but I believe that the greater an increase of the cost of living, the more money people will recirculate into the marketplace, thereby increasing demand as well as supply – leading to the favorable equilibrium price.  To answer the question more specifically, though, I think the increase of the minimum wage at the rate of inflation has a relatively negligible effect on the government (or the state, if their price floor differs from the government) to really be of much consequence to them while increasing the purchasing power of the working class (as long as inflation rates don’t get too high).

2.  Should a tax be imposed on "Cadillac" health insurance plans?

                In a word, no.  If in 2014 it became mandatory for all individuals to purchase health insurance, I am inclined to think that those who did not have it before and did choose to get it this year are those people who opted to get low-premium, high deductible plans.  You can think of this as people trying to do what they are told, but at the same time doing the least they can to be in compliance, since mainly so many people disagree with the mandate.  If a person opts for a “Cadillac” health plan that covers conditions that lesser plans have always denied like mental health, travel consults (deeming them not medically necessary) they are still putting more money into the pool to help even out the costs for everyone else, as I think is the goal of Obamacare.  I suppose opponents would argue that like higher tax rates for the wealthy, it would make sense to tax the policy holders or employers of more expensive plans.  Also, if a person is able to purchase a “Cadillac” plan when they could easily get away with a less expensive plan, but choose to do it anyway – why should they be burdened with a tax?  I believe there are many individuals who whether they are engaged in high-risk activities, have many family dependents or for employers with a disproportionately older work force, according to the United Health Care website, should not be penalized with an excise tax.  I think the key to lowering medical cost does not lie in excise taxes or public mandates, but rather to focus on cost control of services.  There should not be such a variance of cost from one facility to another if you need to get an MRI done or have your appendix removed.   Our text also states that when the supply curve is elastic (supplier = insurance company) and is elastic because their supply doesn’t change much based on the change in price of policies and the demand curve is inelastic (buyer = policyholders) because their demand doesn’t change significantly due to changes in price – most people want health coverage, the price received by sellers falls only slightly while the price paid by buyers rises substantially.  As a consequence the buyers take on most of the burden.

3.  Should the Federal government impose a price ceiling on essential items such as bottled water during an emergency such as Hurricane Sandy?

                Yes.  This is no more complicated than to be explained by the concept of fairness.  According to a Sept. 13, 2013 article in the Denver Post “Colorado floods: Price-gouging not illegal during emergencies” law enforcement said as long as consumers agreed upon a price there was nothing illegal about price-gouging, except when it came to prescription drugs.  According to the Colorado Assistant Attorney, as long as there is full disclosure it is not considered a scam.  Who cares?  Ethically and morally it is reprehensible for suppliers to increase their prices so as to exclude certain buyers from being able to purchase if they can’t afford the product.  As long as the government doesn’t impose a price ceiling that is below the equilibrium price, creating a shortage and forcing the sellers to ration their goods; a price ceiling that is not binding would control the cost and make it illegal to take advantage of people in such dire circumstances.  Opponents take the position of it being entrepreneurial and in theory does undermine our free-market economy, but from the same article, a University of Denver finance professor said “"There's no economic justification for the increase in price when the supply can come back," he said, "It's a huge issue in the finance and business world, of a company's social responsibility, of being a good corporate citizen.

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