Step 1: Summary of the Article

The nations second large city voted to decide to increase the minimum
wages from $9 an hour to $15 an hour. Come as workers are rallying to get higher
wages and some large companies had increased their minimum wages. Some other
cities have already accepted the increase of the minimum wages. The minimum wages
will be effectively in Los Angeles, because there are around 50% of the workers are
earning less than $15 per hour. This proposal will help many workers especially in the
place that have high cost of housing. Small business owners said that the minimum
wages could turn Los Angeles into a wages island, force the business to nearby
place that can afford cheaper wages. The minimum wages will be increase slowly in 5
years, for the small business they have enough time to adapt it. Stuart Waldman said
that due to the increase of the minimum wages, it is great for the employees, but the
truth is the employees are going to lose their jobs. Some companies cannot afford the
increased minimum wages, so they have to reduce the number of the workers. The
workers should be respected and they deserve to have a higher wages. The economist
who support to increase the minimum wages to $15 say there are not enough
historical data to predict the effect of increasing the minimum wages.

Step 2
Firstly, we discuss about the market equilibrium of the wages in Los Angeles.
Market equilibrium is a situation in which quantity demanded equals to quantity
supplied (Hubbard and O'Brien, 2015). Market equilibrium price is a price which
consumers and suppliers are willing to pay. From the article we can see that the
equilibrium wages is $9 per hour, so this means that the employees are willing to
work for $9 per hour and the business are willing to pay the wages at $9 per hour.
From the graph below, it shows that the quantity demanded of the labours is 1000 at
$9 per hour, the quantity supplied is also 1000 at $9 per hour, so in this situation, there
will no people are unemployed, everyone will get a job.

There are almost 50 percent of the workers earn less than $15 an hour. To
protect the benefit of unskilled employees, improve the purchase power and because
of the high cost of housing, the government of Los Angeles decided to set a price
floor for the wages per hour. Price floor is a legal minimum, in which government do
not allowed the price of the services or goods exceed the floor (Study of
Economics, 2011) . Based on the article, the minimum wages was increased from $9
to $15; this means the employer must paid the wages at or more than $15.

If the price floor is set above the equilibrium point, it will have a strong effect.
But there will be no big effect if the price floor is set below the equilibrium price. As
this example, Government of Los Angeles had set a $15 price floor above the
equilibrium price $9. So the equilibrium price is an illegal price. This price floor will
causes a lot of problem, like there will be a surplus of labour supply; the business may
want to hire lesser workers, but more people want to find a job, so there are many
people cannot find a job. If want to know the effect of unemployment, we must look
at the both demand and supply curve. From the graph above, it shows that the quantity
supplied of the labour is 1500 but the quantity demanded is only 500, thats mean
there will be 1000 workers are unemployed. According to the article, many small
businesses will incur more expenses than before, because of some unskilled workers
will get high wages with lesser job, and many small business will move to the other
place that can pay lesser wages. In the article, Mr Stuart Waldman Said that a lot of
businesses were not going to make it, it was great that the minimum wages increased
but the sad truth is there will be a lot of employees will lose their jobs.

Next we discuss about the wages elasticity of the labour demand. Elasticity
means that the measure of a variables sensitivity to a change in another variable
(Hubbard and O'Brien, 2015). Elasticity of demand can be calculated by the
percentage change in quantity divide by the percentage change in price. If the value is
more than 1, it means that the demand of the goods is sensitively affected by the price,
if the value is less than 1, which means the demand is insensitive with the price.
Based on this article, it shows that every business was sensitive when the government
of Los Angeles decided to increase the minimum wages. The businesses will lay off a
large number of workers when there is a small change in the minimum wages.

For the examples above, the wages elasticity of labour demand is -1.3333.
The negative shows that demand curve has a negative relationship. The elasticity is
more than 1, so in this case, the demand of the labours is sensitively affect by the
wages per hour. In the article also shows that every business are unwilling to pay for
higher wages.

There is also a wages elasticity of labour supply. There is also a formula to

calculate the elasticity of supply, the percentage change in quantity supplied divide by
the percentage change in price. If the value is more than 1, then it is elastic. However
if the value is less than 1, it is inelastic.

For examples, the graph above shows the supply curve of the labour in Los
Angeles. With the data, the elasticity of labour supply is 0.8, so it is inelastic.

Step 3

The diagram above shows the surplus and the deadweight loss of the firms and
workers. We can see that there is a price floor for minimum wages at $15 per hour,
which is above the equilibrium wages per hour $9. In this case, Firms surplus is the
different between the highest price a firm is willing to pay for the wages per hour and
the actual price the firm pays (Hubbard and O'Brien, 2015). Workers surplus is the
different between the lowest wages a worker would be willing to accept and the
wages it actually receives (Hubbard and O'Brien, 2015). The firms surplus measure
the benefits to the firm from participating in a market, the workers surplus measure
the benefits to the workers from participating in a market. Based on the diagram,
before the government of Los Angeles increase the minimum wages per hour, the
original firms surplus is A+B+C. However, the workers surplus is E+D. After the
government of Los Angeles set a price floor above the equilibrium price, the
minimum wages will decrease employment, the firms surplus will also decrease, so
there will be a deadweight loss for society and there will also a change in the firms
surplus and workers surplus. The new firms surplus is A, the new workers surplus is
B+E and the deadweight loss is C+D.

Reference List

1. MEDINA, J. (2015). Los Angeles Lifts Its Minimum Wage to $15 Per

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[Accessed 6 Jun. 2015].
Hubbard, R. and O'Brien, A. (2015). Economics. Upper Saddle River,
N.J. ; Harlow: Pearson Education, p.144.
Study of Economics, (2011). Price Floors and Minimum Wages.
[online] Available at:
https://studyofeconomics.wordpress.com/2011/03/15/price-floorsand-minimum-wages/ [Accessed 6 Jun. 2015].
Hubbard, R. and O'Brien, A. (2015). Economics. Upper Saddle River,
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Hubbard, R. and O'Brien, A. (2015). Economics. Upper Saddle River,
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