question b, how the minimum wage influence the unemployment and question c, when the bottom wage rates grew slower than top wage rates, how to influence the effect of the minimum wage on unemployment ?
Push to Raise the Minimum Wage Most State Minimum Wages Rising to Exceed the Federal Minimum Bureau of Labor Statistics and National Conference of State Legislatures The recovery from the 2008-2009 recession has not seen much growth in wage rates, and the spread between the top and bottom earnings has widened. Budget-strained low-paid workers and their political supporters think the minimum wage should rise. The Bureau of Labor Statistics (BLS) reports that in 2013, 1.5 million earned the federal minimum wage of $7.25 an hour and about 1.8 million had wages below the federal minimum. These 3.3 million workers represented 4.3 percent of hourly paid workers, which compares to 4.7 percent in 2012 and 13.4 percent in 1979. Federal law-makers are not moving, but most state legislatures agree that the minimum wage should rise. According to the National Conference of State Legislatures, 38 states introduced minimum wage bills during the 2014 session and 34 states considered increases to the state minimum wage rate. Ten states (Connecticut, Delaware, Hawaii, ESSENCE OF THE STORY Maryland, Massachusetts, Michigan, Minnesota, Rhode Island, Vermont, and West Virginia) and D.C. have . In 2014, 34 states considered raising the state minimum wage rate. increased their minimum wage rate during the 2014 session. In 2014, state minimum wage rates were higher than the federal rate of $7.25 an hour As of August 1, 2014, 23 states and D.C. have mini- in 23 states and DC. mum wage rates above the federal minimum wage and . Another 18 states have a minimum wage rate 18 states have minimum wage rates the same as the fed- equal to the federal minimum. eral minimum wage of $7.25 an hour. A few states have The Bureau of Labor Statistics reports that 3.3 minimum wage rates below the federal minimum wage, million or 4.3 percent of hourly- paid workers were paid at or below the federal minimum in so the federal minimum thus applies in these cases. 2013. Most economists think that a higher minimum wage Supporters of minimum-wage hikes say that will lower employment. low-paid workers have fallen further behind. BLS Reports March 2014 Report 1048 Characteristics of Minimum Wage Workers, 2013, . Economists say a higher minimum wage will http://www.bls.gov/cps/minwage2013.pdf, and Nati conference of State Legislatures, cost jobs. http://www.nesL.org/ mum-wage-chart.aspx# 1 ECONOMIC ANALYSIS The state minimum wage rate exceeds the federal mini- mum wage rate in 23 states. Because the equilibrium wage rate exceeds the mini- mum wage rate, the quantity of labor demanded The state average minimum wage in 2014 was $8.25 equals the quantity of labor supplied and the minimum an hour, $1 more than the federal minimum of $7.25 an wage rate has no effect on the market outcome. hour, set in 2009 . Figure 2 illustrates a market for low-skilled labor in Other wage rates have risen and the cost of living has which the equilibrium wage rate is lower than the increased, and there was a widely held view that the minimum wage rate. minimum wage rate needed to rise. The demand for labor is Dj and the supply of labor is With disagreement leading to inaction in Washington, an S1, so the equilibrium wage rate is $7.75 an hour. increasing number of state governments began to raise their state minimum wage rates to levels that exceeded the . The minimum wage rate is $8.25 an hour, and the quantity of labor employed equals the quantity demand- federal minimum wage. ed at the minimum wage rate. Supporters of the increases believed that employment The quantity of labor demanded and employed is 3.6 would not be adversely affected, while opponents argued million-the quantity estimated by the Bureau of Labor that the higher minimum wage would bring job losses. Statistics. The figures illustrate these two opinions about the effect of At the equilibrium wage rate, the quantity of labor a higher minimum wage rate. supplied is 3.7 million (an assumed quantity) and 0. 1 Figure 1 illustrates a market for low-skilled labor in which million workers are unemployed. the equilibrium wage rate exceeds the minimum wage. . With the equilibrium wage rate less than the minimum The demand for labor is Do and the supply of labor is So, wage rate, the quantity of labor demanded is less than so the equilibrium wage rate is $8.75 an hour. the quantity of labor supplied and the minimum wage The minimum wage rate is $8.25 an hour, so no one rate brings an increase in unemployment. earns the minimum wage. Equilibrium wage exceeds 8 8. 10.00 minimum wage: Does not ge rate (dollars ase unemployment 8. 10.00 Equilibrium Minimum wage exceeds Wage " 9.00 - wage 200 equilibrium wage: 8.75 Wage ro Increases unemployment Minimum Minimum wage 8.25 8.25 wage 8.00 7.75 Do Equilibrium wage 7.00 7.00 3.6 3.7 3.8 Quantity of labor (millions) 3.6 3.7 3.8 Quantity of labor (millions) Figure 1 Minimum Wage Below Equilibrium Wage Figure 2 Minimum Wage Above Equilibrium Wage Questions a) When a state raises its minimum wage above the federal minimum, what would you expect to happen to unemployment in that state? b) The news article reports that the percentage of hourly paid workers paid the minimum wage or less decreased from 13.4 percent in 1979 to 4.3 percent in 2013. Would you expect the rise in the minimum wage to have a smaller effect on unemployment today than in 1979? c) The news article reports that during the recovery from the 2008-2009 recession, wage rates grew slowly and the bottom wage rates grew slower than top wage rates, straining the budgets of low-paid workers. How would you expect this fact to have influenced the effect of the minimum wage on unemployment
