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COMMENTARY NUMBER 1 COVERSHEET

Economic commentary number: HL Number 1

Title of extract: Jamaica workers to get minimum wage increase

Source of extract: Forbes

Date of extract: 2 May 2009

Word Count: 741

Date the commentary was written: 17 May 2009

Section of the syllabus to which the commentary relates: Section 2

Candidate name: Rock Chetchotisak

Candidate number No Exam


Rock Chetchotisak
No Exam

Commentary Number 1 Extract

Jamaican workers to get minimum wage increase


Associated Press,
03:32 PM EDT, May 02, 2009  

Jamaica is hiking the minimum wage by 10 percent to stimulate the economy and help poor
families.
Workers will earn at least $46 a week starting Monday.
Labor Minister Pearnel Charles said Friday the government wants to raise Jamaicans' standard of
living, but without hurting employers.
Jamaicans complain that salaries are not keeping pace with rising prices. The nation last
increased minimum wages in January, by nearly 17 percent.
About 1.3 million of the island's 2.8 million residents are employed, most of them in the services
industry. Unemployment is about 10 percent.

“Jamaican  workers  to  get  minimum  wage  increase.”  Forbes.  2  May  2009.  17  May  2009  
<http://www.forbes.com/feeds/ap/2009/05/02/ap6370038.html>.  
Rock Chetchotisak
No Exam

Commentary Number 1

Jamaica is raising its minimum wage (a law that makes trading labor below a specified wage
illegal) by 10% to $46 a week starting Monday from May 2. Assuming that the new minimum
wage is set above the equilibrium price (price at which quantity demanded equals quantity
supplied) for effectiveness, it is expected that there will be a surplus (excess quantity supplied at
a particular price; the difference between the quantity supplied and the quantity demanded at a
particular price) of labor. This is shown in Diagram 1 below.

Diagram: Minimum Wage Laws in Jamaica

W Surplus S
Wmin
2  
Wmin
1  
Wage W  e  

0 Qd2 Qd1 Qe Qs1 Qs2 Q

Jamaican Workers (hrs/wk)

In the diagram above, curve S represents the supply (the amount of labor households willing to
offer at various possible wages during a given time period) of labor in Jamaica and curve D
represents the demand (the amount of labor that a producer is willing and able to employ at
various possible wages in a given time period). The equilibrium wage (the wage at which the
quantity demanded of labor is equal to the quantity supplied of labor) is represented by We, and
Qe is the equilibrium quantity bought and sold at the equilibrium wage. Wmin1 represents the
previous minimum wage with quantity demanded (the amount of labor that a producer is willing
and is able to hire at each particular wage during a given time period) at Qd1 and quantity
supplied (the amount of labor households willing to offer at a particular wage during a given
time period) at Qs1.

All definitions have been adapted from:


Sloman, John. Economics, 5th edition. Essex: Pearson Education Limited, 2006
After the minimum wage is raised to $46 a week on Monday, May 4, the new minimum wage
would be represented by Wmin2. It is expected that at this new minimum wage, there will be a
decrease in the quantity demanded from Qd1 to Qd2 and an increase in the quantity supplied
from Qs1 to Qs2 in response to the increased price of labor. Therefore, the initial surplus of
labor (the quantity supply of labor exceeds the quantity demanded of labor) will increase.

According to the article, the government wanted to raise Jamaicans' standard of living, but
without hurting employers. By raising the minimum wage, the government failed to take into
account the workers who may lose their jobs as a result of the increase in minimum wage. There
is an inequality burdens of unemployment, the cost of unemployment would most likely be
distributed to the unskilled labors, usually the minority teenagers with disadvantaged
background. This is because if the government forces firms to pay higher wages for their labors,
more skilled workers will be applied for the available positions. This is due to the fact that given
the choice between hiring an unskilled worker and one with more experiences with a similar
wage; employers with no doubt will hire the more productive employee as opposed to those with
lower skills. The new minimum wage will have a negative effect on the young unskilled
workers as employers will replace many of them who work for the minimum wage today with
more skilled workers.

However, on the positive side, it is true that the minimum wage law may improve the living
standards of the Jamaicans workers who remain employed. This is because according to the
article, prices are rising in Jamaicans. Therefore, such increase in wages would benefit those
workers who were paid below the new minimum wage (Wmin2) and still retain their jobs after
the law is imposed.
Moreover, despite the potential replacements of workers, it is most likely that in the short-run,
the affected firms would still face an increase in cost of production, labor. In this case, there will
be a decrease in supply (amount of a good or service that producers are willing to offer at various
possible prices during a given time period) of the firms’ products. Consequently, if the demand
(the amount of a good or service consumers are willing and able to buy at various possible prices
during a given time period) of the goods and services remains constant, it will ultimately lead to
an increase in price of the products, thus decreases the quantity demanded. However, assuming
that the additional wages that will be paid by firms will acquire more productive workers, in the
long-run, the particular firms might be, and is most likely to be more efficient.

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