In 2012, many unskilled workers in the United States earned the federal minimum

Question

In 2012, many unskilled workers in the United States earned the federal minimum wage of $7.25 per hour. By contrast, average earnings in 2012 were about $18.00 per hour, and certain highly skilled professionals, such as doctors and lawyers, earned $160.00 or more per hour.

Instructions: In parts a, c, and d, round your answers to 2 decimal places. In part b, enter your answers as whole numbers.

a. If we assume that wage differences are caused solely by differences in productivity, how many times more productive was the average worker than a worker being paid the federal minimum wage?

___________

     How many times more productive was a $160-per-hour lawyer compared to a worker earning minimum wage?

_________

b. Assume that there are 20 minimum-wage workers in the economy for each $160-per-hour lawyer. Also assume that both lawyers and minimum-wage workers work the same number of hours per week. If everyone works 40 hours per week, how much does a $160-per-hour lawyer earn a week?

    $ ____________ per week.

    How much does a minimum-wage worker earn a week?

    $___________ per week.

c. Suppose that the government pairs each $160-per-hour lawyer with 20 nearby minimum-wage workers. If the government taxes 25 percent of each lawyer’s income each week and distributes it equally among the 20 minimum-wage workers with whom each lawyer is paired, how much will each of those minimum-wage workers receive each week?

     $___________ each week.

     If we divide by the number of hours worked each week, how much does each minimum-wage worker’s weekly transfer amount to on an hourly basis?

     $________ per hour.

d. What if instead the government taxed each lawyer 100 percent before dividing the money equally among the 20 minimum-wage workers with whom each lawyer is paired. How much per week will each minimum-wage worker receive?

     $_________ per week.

     How much is that on an hourly basis?

     $________ per hour.

Explanation / Answer

Answer:

Given the information is:

The unskilled workers earned minimum wage is: $7.25 per hour

The highly skilled workers earned wage is: $160 or more per hour

The average earnings of worker is: $18 per hour

(a) The wage differences are solely due to differences in productivity, in this problem we estimate how many times more productive one group is relative to another by taking the ratio of wages.

The average worker is: $18/$7.25 = $2.48

The high wage worker is: $160/7.25 = $22.06

   Therefore, the average worker and high wage worker are $2.48 and $22.06 more productive than the minimum wage workers respectively.

(b)

The lawyer will earn:      S160*40 = $6,400 per week

The each minimum wage worker will earn: $7.25*40 = $290 per week

(c)

The government revenue from the tax on lawyers is: 0.25*6400 = $1,600

Now, the amount distributed to 20 minimum wage workers, that is: $1600/20 = $80

Thus, each worker minimum wage received from the government is: $80 per week

The weekly transfer by the hours worked per week is: $80/40 = $2 per hour

(d)

The government revenue will equal to $6,400 assuming the lawyer continues to work. Therefore, a weekly transfer is: $6,400/20 = $320. And the hourly transfer is: $200/40 = $5

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