Evaluating Economic Policies for Income Distribution
A nation's government is concerned about a declining share of national income going to workers' wages and a corresponding rise in the share going to corporate profits. Two policy options are being debated:
- Policy 1: A significant, direct increase in the national minimum wage.
- Policy 2: A comprehensive set of reforms aimed at making it easier for new companies to start and compete with established firms.
Evaluate which of these two policies is more likely to cause a sustainable, long-term shift in the distribution of income back towards labor. Justify your answer by explaining the economic mechanism through which your chosen policy would work.
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