Explain the difference between minimum wage and subsidies as a way to help low-income people. Identify disadvantages of each.
What will be an ideal response?
Minimum wage is a fixed wage that a person earns for doing certain work. By law, the person cannot earn less than this wage. However, with the subsidy system, a person does not work for a fixed wage that cannot be decreased. If a person works in a low-income job, he or she would receive a subsidy from the government to offset the low pay. For example, a person could have earned income tax credit. These subsidies, though, would be paid for by the taxpayers. With minimum wage, the company or organization would pay their employees the wage. As a result, minimum wage may lead to higher prices for consumers and often leads to more automation and increased unemployment. Subsidies increase the tax burden on people who do not receive subsidies and therefore must pay higher taxes to compensate for those whose taxes are reduced by the subsidy.
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