Christmas Cheer

The following hypothetical example illustrates how presidential leadership can stimulate economic growth during the Christmas season:

Figure 1

At equilibrium, the quantity demanded is equal to the quantity supplied, 5 teenagers for jobs, with a corresponding wage of 50 units of money (Figure 1).

Figure 2

With Christmas vacation supplying more teenagers for jobs, the supply curve shifts rightward to reflect the increase in quantity supplied, and demand meets supply at a new equilibrium wage, 30 units of money for each of the 7 teenagers willing to work for the demanded wage (Figure 2).

Figure 3

But with the government mandating a minimum wage of 50 units of money, preventing companies from adjusting wages for the larger supply of teenagers who want jobs during the Christmas season, only 5 teenagers would be supplied with jobs, out of 9 willing to work at the fixed wage (Figure 3).

Teenagers prevented from competing for jobs, due to minimum wage laws, illustrates how bad economic policy can result in a surplus of teenage workers, resulting in higher unemployment and less holiday shopping during the Christmas season.

The United States Congress should judge it as necessary and expedient to provide legislation that would stimulate aggregate demand in the American economy, by giving teenagers the freedom to work at jobs during the Christmas season without the restriction of a minimum wage.

References

A.C. Pigou, “Wage Policy and Unemployment,” The Economic Journal, September, 1927.

John A. Garraty, Unemployment in History: Economic Thought and Public Policy (New York: Harper & Row, 1978).

N. Gregory Mankiw, Principles of Economics, Fifth Edition (Mason: Cernage Learning, 2009).

Graham Bannock, Ron Baxter, and Evan Davis, The Economist Dictionary of Economics, Fourth Edition (Princeton: Bloomberg Press, 2003).

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