Question 2

(a) In a typical economy, the bulk of income earners are workers who earn income in the form of wages. It is in the interest of the government to increase the wages of the workers so that they can have a higher standard of living. Many economies such as the US, Hong Kong and Malaysia have adopted a minimum wage law which requires the employers to offer a wage above the equilibrium level in the labour market.

Comment on the effects on wage, employment and the social welfare of a minimum wage law using a labour market diagram. Are the workers better off under a minimum wage law? Explain. (15 marks)

(b) Instead of adopting a minimum wage law, Singapore government prefers two different measures to help the workers. One measure is the Wage Credit Scheme which co-pays the wage cost with employers. The other measure is the Progressive Wage Model which provides subsidies to train workers in relevant skills and courses.

Evaluate the effects of these two (2) measures on the equilibrium wage, employment and social welfare in the Singapore labour market. Support your answers using suitable labour market diagram(s). (15 marks)

(c) Compare and contrast the effects of minimum wage law, the Wage Credit Scheme and the Progressive Wage Model.

Explain their advantages and disadvantages in terms of wages, employment and social welfare. In your opinion, which scheme is the best policy to raise the welfare of the workers? Justify your answers. (10 marks)