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OG CR:In Stenland, many workers have been

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NandishSS Master | Next Rank: 500 Posts Default Avatar
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OG CR:In Stenland, many workers have been

Post Sat Sep 17, 2016 9:11 pm
In Stenland, many workers have been complaining that they cannot survive on minimum wage, the lowest wage an employer is permitted to pay. The government is proposing to raise the minimum wage. Many employers who pay their workers the current minimum wage argue that if it is raised, unemployment will increase because they will no longer be able to afford to employ as many workers.

Which of the following, if true in Stenland, most strongly supports the claim that raising the minimum wage there will not have the effects that the employers predict?

A) For any position with wages below a living wage, the difficulty of finding and retaining employees adds as much to employment costs as would raising wages.

B) Raising the minimum wage does not also increase the amount employers have to contribute in employee benefits.

C) When inflation is taken into account, the proposed new minimum wage is not high as the current one was when it was introduced.

D) Many employees currently being paid wages at the level of the proposed new minimum wage will demand significant wage increases.

E) Many employers who pay some workers only the minimum wage also pay other workers wages that are much higher than the minimum.

OA:A

Source:OG 2017

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MBA Challengers Senior | Next Rank: 100 Posts
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Post Thu Sep 22, 2016 12:02 am
Let's start with listing down the premises and the conclusion:

1. Workers complaining that minimum wage is not sustainable
2. Govt proposing to raise minimum wage

Conclusion:
Employers paying current minimum wage argue that raise will increase unemp as they cannot employ so many workers at raised minimum wages

Assumption:
Hiring and employment cost will increase leading to lesser workers being employed

Task: To find a crack in the employers argument/conclusion

Now let's look at the options:
A. Let's assume living wages means sustainable wages (might be higher than previous minimum wage). The fact that finding an retaining workers with wages lesser than living wages means that they were anyway spending extra money while hiring people on the previous minimum wage. That money can be used to offset the proposed increase in minimum wage.
B. However, the employers are protesting against the increase in the basic minimum wage as well. Doesn't help.
C. The employers are not comparing this minimum wage to the time when the last one was introduced. That comparison is not useful
D. This in fact strengthens the employers argument as the workers being paid higher than minimum wage will demand hikes since their wage will then become the minimum wage
E. This is a matter of fact statement doing nothing to strengthen or weaken the statement. It only talks about the fact that for some employers there is a laddered wage with some workers earning more than the minimum wage

Clearly, the most logical answer then to this question is A.

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Marty Murray Legendary Member
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Post Mon Sep 19, 2016 8:47 pm
The employers are arguing that given a higher minimum wage they will have to reduce the number of people they employ in order to keep labor costs at a level that the employers can afford.

Further, they say that therefore if the minimum wage is increased, unemployment will increase.

Something that supports the claim that raising the minimum wage will not have these effects will weaken the employers' argument.

Let's go to the answer choices to find something that weakens their argument.

(A) If raising the minimum wage makes it become a living wage, then A indicates that raising the minimum wage will not affect total employment costs, because while wage expense will increase, the costs of finding and retaining employees will decrease. So even with a higher wage, employers will not experience higher total labor costs and will not have to reduce employees in order to be able to afford the cost of labor. Therefore, A weakens the employers' argument.

(B) Even if this is true, raising the wage will still increase wage expense.

(C) This is a great trap answer, because it creates the illusion that the new wage would not be higher than the current wage. However, even if the wage is not as high in real terms as the current one was when it was introduced, the new wage would be higher than the current one is NOW, and so costs would increase relative to where they are NOW.

(D) This shows a reason why increasing the minimum wage will increase costs beyond the increases directly attributable to the increase in the minimum wage and thus further strengthens the employers' intermediate conclusion that if the minimum wage is increased they will not be able to afford to employ as many workers.

(E) The employers mentioned in this answer choice will still see wage expense increases if the minimum wage is increased. Also, many employers is not all employers. So even if many employers already pay some workers wages higher than the minimum wage, others may not do so.

The correct answer is A.

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