Finding the Right Policy

When we formulate and implement a policy, there will certainly be 2 groups of people, those that support the policy and those that are against the policy. Each group will state their reasons and often supplement them with studies done by various institutions. It is then the duty of policy formulators to look into these, decide which path to take with regards to a particular policy and staunchly defend their choice.

Although it sounds simple, it is not in reality because the case brought forward by each group is usually very credible and convincing. When this happens, policy formulators really have to rely on their own knowledge of economics to decide on the right path.

A very good example is the policy that involves providing monetary support for people who are willing to further their studies. Supporters of this policy state that it will improve the literacy rate and hence increase the average wage rate of the country. Opponents state that it will only benefit certain segments of the society and left out people who are not academically inclined. They are afraid that it will widen the wage gap between those that are highly educated and those that are not.

At first sight, both views are rational but when a deeper analysis is done using Cobb-Douglas equation, it is discovered that the opponents’ worry is unfounded. The implementation of this policy will not at anytime widen the wage gap. Instead, it will serve to push up the average wage rate such that those that don’t benefit directly from the monetary support will also end up receiving higher wage.