Consider the case of Gravity Payments, a privately owned credit card processing
ID: 1126613 • Letter: C
Question
Consider the case of Gravity Payments, a privately owned credit card processing company located in Seattle,Washington. In Spring of 2015, CEO Dan Price implemented a dramatic pay restructuring at his firm. Each of the firm’s 120 employees, no matter what the employee’s job description, would essentially be subject to a firm imposed minimum wage of $70,000 per year.
1.
a) What kind of positive externality, if any, is Dan Price hoping to create? Please briefly explain. Alternately, what is the negative externality Dan Price is hoping to address? Please briefly explain. Though you can answer the question without referring to the company's website, here is a link to its website: https://gravitypayments.com/thegravityof70k/
b)What could be the consequences to society as a whole? What are the limitations to any societal phenomenon caused by following Dan Price’s lead here; that is, joining the Movement To $70k?
Explanation / Answer
a. Provision of a minimum wage for the employees will lead to increase in the motivation level of the employees and these employees can motivate each other to do the work properly and increase production by being more efficient. He is hoping to address the negative externality of fall in the motivation level of the employees and job satisfaction where one employee can lower the morale of another employee, thus creating a negative externality for the firm.
c. For the society as a whole, increase in production level as a whole will lead to increase in production levels and increase in income level and thus people will be better off as compared to their initial positions. This might lead to unemployment in the economy as surplus of labor will be supplied at the new wage floor level and this might lead to increase in unemployment level of the society.