Introduction:

In the U.S., workers are paid at least the highest minimum wage set by federal, state, or local law. Minimum wage is a controversial topic among economists, politicians, and voters. This controversy has been documented by The Economists in an article titledEconomists argue about minimum wagespublished on 7/8/2017 (https://www.economist.com/finance-and-economics/2017/07/08/economists-argue-about-minimum-wages(Links to an external site.)).

The standard introductory economics textbookprovidesa static analysis of minimum wage and its consequences, pointing to the decrease in employment due topricecontrol. Several economists haveattemptedto study the effects of minimum wage. For example, the increase in minimum wage to $15/hour in Seattle-Tacoma area was studied by two independentgroupsof researchers that found opposing results (Seehttps://www.huffingtonpost.com/entry/the-2017-berkeley-and-university-of-washington-studies_us_596824fae4b06a2c8edb456e(Links to an external site.)for details). In this activity, you will be able to go beyond the textbook to better understand minimum wage policies.

Prompt:

Textbooks tend to oversimplify the issues around minimum wage. The static analysis with the demand-and-supply diagramtendsto portray minimum wage laws as very distorting and negative. There is a sharp contrast between the unambiguous textbook analysis of minimum wage and the ambiguous empirical results. For example, the supply-and-demand model ignores any income effect by minimum wage earners or the possibility of monopsony power in sectors like fast food which employ many minimum wage workers. The purpose of the podcasts and the readings is to expose you to some of theintricaciesand debates surrounding minimum wage policy. While there is a lack of consensus about minimum wage among economists, this policy draws a lot of attention with several politicians proposing increases to the minimum wage. With more knowledge that complements the textbook, you are now asked to consider different policy recommendations tomodify, maintain, or remove minimum wage thatgoesbeyond the material covered in your textbook. What is the best minimum wage policy?Choose one and discuss your choicebyansweringthe discussion questions thatfollow.

1. Federal minimum wage should be revised andmodifiedbased on changes in national costs of living such that they continue to guarantee an acceptable living standard.
2. State and local minimum wages should be adjusted yearly based on state and local changes in costs of living such that they continue to guarantee an acceptable living standard.
3. Minimum wages should be abolished as they create unemployment.
4. Minimum wages should not be modified, as they fulfill their current purposes.

Important Questions:

1. What is the best minimum wage policy?
2. What is the most important reason for your choice?
3. Do we need a minimum wage? Why?
4. Who are the winners of a minimum wage? Who are the losers of a minimum wage?
5. Does minimum wage create unemployment? If so, who is more likely directly affected bythisminimum wage?
6. Why would different cities and states set different minimum wages?
7. Is the minimum wage binding in all locations and/or industries? Explainand give an example.
8. What are the consequences of having adjacent cities or states with different minimum wages?
9. How could theCPIbe used tomodifyminimum wage?
10. What are alternative policies thatattainsimilar goalsasthe minimum wage law? Are they more effective than the minimum wage?

References and Resources

Before answer the questionsaboveyou should listen and read the following, whichprovidesubstantial information about minimum wage. Price control using minimum wage as an example:

Podcasts:

• https://www.npr.org/sections/money/2016/04/06/473128291/episode-562-a-mall-divided(Links to an external site.). This NPR Planet Money episode discusses the curious case of a mall located in two cities with two different minimum wages in California: San Jos and Santa Clara
• https://www.npr.org/sections/money/2014/03/06/286861541/does-raising-the-minimum-wage-kill-jobs(Links to an external site.). This NPR Planet Money episode poses the question: Does the minimum wage kill jobs? This short episode discusses the famous studies on fast food restaurants in New Jersey and Pennsylvania done by David Card and colleagues and by David Neumark and colleagues, who found opposing conclusions.
• https://www.npr.org/templates/transcript/transcript.php?storyId=385468357(Links to an external site.). This NPR Planet Money discusses the origin of the minimum wage in the U.S.

Articles:

• https://www.economist.com/finance-and-economics/2017/07/08/economists-argue-about-minimum-wages(Links to an external site.). This article documents the controversy around minimum wage among economists.
• https://www.huffingtonpost.com/entry/the-2017-berkeley-and-university-of-washington-studies_us_596824fae4b06a2c8edb456e(Links to an external site.). This article discusses the findings from two independent studies about the increase in minimum wage to $15/hour in Seattle-Tacoma area, which finds opposing results.