98d ago

Minimum Wage Economic Theory

  • Minimum Wage as a Price Floor

    • The minimum wage is a debated policy example of a price floor.

    • A price floor is a minimum allowable price intended to maintain a minimum income level for workers.

  • Basic Economic Theory

    • Graphical Representation:

      • X-axis: Quantity of Labor

      • Y-axis: Price of Labor (Wages)

      • Demand Curve: Downward sloping (from companies hiring workers)

      • Supply Curve: Upward sloping (workers selling their labor)

      • Equilibrium:

        • Quantity of labor (Q0) and equilibrium wage (w0) where supply meets demand.

  • Effects of Setting a Minimum Wage Above Equilibrium

    • Higher Quantity Supplied (qs): More workers desire jobs at increased wages.

    • Lower Quantity Demanded: Employers hire fewer workers at these higher wages.

    • Result: Surplus of Workers (Unemployment) develops as supply exceeds demand.

    • Winners: Workers who retain jobs at higher wages, transferring some surplus from employers to them.

    • Losses: Jobs that could have been created at a lower wage are missed due to legal restrictions.

  • Empirical Research

    • Studies show little to no immediate decrease in employment following minimum wage increases.

    • Advocates argue that economic principles vary in the low-skilled labor market.

  • Counterarguments to Advocates

    • Historical Context: Past minimum wage increases in the U.S. have been small (e.g., 50¢ per year) and affected only 3-5% of the workforce, limiting observable impact.

    • Employment Metrics: Research often focuses only on job numbers rather than total hours worked.

      • Parts of compensation such as uniform costs or reduced benefits may not be reflected.

  • Adjustment Period

    • Employment changes predicted by simple models show an immediate drop after a minimum wage increase, which does not reflect complexity in real situations.

    • Adjustment may instead be gradual, where businesses adapt slowly (e.g., reducing hours or changing operational methods).

  • Research Findings

    • Studies (e.g., research by Jeremy West) identified that high minimum wages result in slower job growth, with fewer positions being available, rather than immediate job losses.

    • Importance of low-wage jobs: Provide essential skills and experiences necessary for upward mobility in the job market.

  • Demographics of Minimum Wage Workers

    • Notably, many minimum wage earners are teenagers from middle/upper-class families, which contrasts with the intent of aiding low-income, low-skilled individuals.

    • Minimum wage policies act as a blunt instrument, affecting various socioeconomic groups without discrimination.

  • Consequences for Marginalized Groups

    • High school dropouts and minorities are disproportionately affected by minimum wage policies, suffering from the negative employment effects.

    • Wishful thinking regarding minimum wage impacts does not alter economic principles; careful policy consideration is essential.

  • Additional Material

    • There is a debate available for further insights: James Galbraith vs. the speaker on whether a $15/hour minimum wage is beneficial for Texas.

    • Recommended for those interested in a deeper dive into minimum wage discussions.


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Minimum Wage Economic Theory

  • Minimum Wage as a Price Floor

    • The minimum wage is a debated policy example of a price floor.

    • A price floor is a minimum allowable price intended to maintain a minimum income level for workers.

  • Basic Economic Theory

    • Graphical Representation:

      • X-axis: Quantity of Labor

      • Y-axis: Price of Labor (Wages)

      • Demand Curve: Downward sloping (from companies hiring workers)

      • Supply Curve: Upward sloping (workers selling their labor)

      • Equilibrium:

        • Quantity of labor (Q0) and equilibrium wage (w0) where supply meets demand.

  • Effects of Setting a Minimum Wage Above Equilibrium

    • Higher Quantity Supplied (qs): More workers desire jobs at increased wages.

    • Lower Quantity Demanded: Employers hire fewer workers at these higher wages.

    • Result: Surplus of Workers (Unemployment) develops as supply exceeds demand.

    • Winners: Workers who retain jobs at higher wages, transferring some surplus from employers to them.

    • Losses: Jobs that could have been created at a lower wage are missed due to legal restrictions.

  • Empirical Research

    • Studies show little to no immediate decrease in employment following minimum wage increases.

    • Advocates argue that economic principles vary in the low-skilled labor market.

  • Counterarguments to Advocates

    • Historical Context: Past minimum wage increases in the U.S. have been small (e.g., 50¢ per year) and affected only 3-5% of the workforce, limiting observable impact.

    • Employment Metrics: Research often focuses only on job numbers rather than total hours worked.

      • Parts of compensation such as uniform costs or reduced benefits may not be reflected.

  • Adjustment Period

    • Employment changes predicted by simple models show an immediate drop after a minimum wage increase, which does not reflect complexity in real situations.

    • Adjustment may instead be gradual, where businesses adapt slowly (e.g., reducing hours or changing operational methods).

  • Research Findings

    • Studies (e.g., research by Jeremy West) identified that high minimum wages result in slower job growth, with fewer positions being available, rather than immediate job losses.

    • Importance of low-wage jobs: Provide essential skills and experiences necessary for upward mobility in the job market.

  • Demographics of Minimum Wage Workers

    • Notably, many minimum wage earners are teenagers from middle/upper-class families, which contrasts with the intent of aiding low-income, low-skilled individuals.

    • Minimum wage policies act as a blunt instrument, affecting various socioeconomic groups without discrimination.

  • Consequences for Marginalized Groups

    • High school dropouts and minorities are disproportionately affected by minimum wage policies, suffering from the negative employment effects.

    • Wishful thinking regarding minimum wage impacts does not alter economic principles; careful policy consideration is essential.

  • Additional Material

    • There is a debate available for further insights: James Galbraith vs. the speaker on whether a $15/hour minimum wage is beneficial for Texas.

    • Recommended for those interested in a deeper dive into minimum wage discussions.