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27 Mar 2019

There is currently discussion among federal policy makers as to whether or not to increase the federal minimum wage. Despite the 2016 Presidential Election being over, this debate is sure to continue.

President Obama pledged in his 2013 State of the Union message to pursue a minimum wage increase nationwide, an issue that has stalled since his first White House run in 2008. In 2013 he declared that “no one who works full time should have to live in poverty,’’ and Obama called for boosting the hourly minimum to $9. During the presidential election, many advocates called for an increases in the federal minimum wage to as much as $15 an hour. However, it still remains at $7.25 an hour, and President Trump ran against raising the federal minimum wage during his campaign.

Do you think there should be an increase in the federal minimum wage? Why or why not, and if so how much should it be raised? What concepts that we have learned in this class that could help explain why it might be a good or bad idea to raise the federal minimum wage?

course ponits:

Individual and Market Demand

Price and Income Effects

Normal and Inferior Goods

Income and Substitution Effects

Market Demand

Elasticity -- All Types

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Jean Keeling
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30 Mar 2019

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Related questions

Since 2009, the national minimum wage has been $7.25 per hour for most occupations in the private sector. Over the past several years, support for an increase in the minimum wage has come from a wide variety of sources, including President Obama administration.  Many of those who support an increase in the minimum wage believe this is one way the government should exercise its social responsibility in an attempt to reduce poverty. The following items address the idea of raising the minimum wage from the current federal minimum of $7.25 per hour.

 

1) Minimum wage is a price floor, so discuss an increase in the minimum wage from a supply and demand standpoint, making sure to address the concept of surplus with respect to the quantity of labor supplied and the quantity of labor demanded that is generated by this price floor.

 

2) What will be the impact on the prices of the products produced by workers working at or near the minimum wage level, and how will this affect overall consumer purchasing?

 

3) Discuss any potential changes in the incentives for low-skilled workers to increase their human capital, and for employers to substitute capital inputs (technology and automation) for labor.

 

4) What might be the impact on government spending on entitlements such as welfare, food stamps, and unemployment compensation in light of the fact that changes in the minimum wage can create changes in unemployment and underemployment?

 

Based on your responses, do you believe that the minimum wage should be raised, lowered, remain as it currently is, or be altogether eliminated? Explain your answer, and make sure to address any social responsibility the government should have regarding the well-being of its citizens with respect to the setting of wages in the private sector

In 2010, many unskilled workers in the United States earned the Federal minimum wage of $7.25 per hour. By contrast, average earnings in 2010 were about $18.00 per hour, and certain highly skilled professionals, such as doctors and lawyers, earned $160.00 or more per hour.

a. If we assume that wage differences are caused solely by differences in productivity, how many times more productive was the average worker than a worker being paid the Federal minimum wage?

Instructions: Round your answer to two decimal places.

times more productive than a minimum wage worker

How many times more productive was a $160-per-hour lawyer compared to a worker earning minimum wage?

Instructions: Round your answer to two decimal places.

 times more productive than a minimum wage worker

b. Assume that there are 20 minimum-wage workers in the economy for each $160-per-hour lawyer. Also assume that both lawyers and minimum-wage workers work the same number of hours per week. If everyone works 40 hours per week, how much does a $160-per-hour lawyer earn a week?

$ per week

How much does a minimum-wage worker earn a week?

$ per week

c. Suppose that the government pairs each $160-per-hour lawyer with 20 nearby minimum-wage workers. If the government taxes 25 percent of each lawyer’s income each week and distributes it equally among the 20 minimum wage workers with whom each lawyer is paired, how much will each of those minimum-wage workers receive each week?

$ each week

If we divide by the number of hours worked each week, how much does each minimum-wage worker’s weekly transfer amount to on an hourly basis?

Instructions: Round your answer to two decimal places.

$ per hour

d. What if instead the government taxed each lawyer 100 percent before dividing the money equally among the 20 minimum-wage workers with whom each lawyer is paired.

How much per week will each minimum-wage worker receive?

$ per week

How much is that on an hourly basis?

$ per hour


The topic of a minimum wage is prone to a heated discussion, especially when people mix up normative with positive statements (in our course, we care more about the latter). Here are two sides of the table. In his webpage https://berniesanders.com/issues/a-living-wage/, Bernie Sanders states. Millions of Americans are working for totally inadequate wages. We must ensure that no full-time worker lives in poverty. The current federal minimum wage is starvation pay and must become a living wage. We must increase it to $15 an hour over the next several years. A different point of view is offered by Ed Rensi, the former president and chief executive officer of McDonald's USA, in a guest post published in Forbes (http://www.forbes.com/sites/realspin/2016/04/25/mcdonalds-minimum-wage-reality/#51311f9658bb). Regardless of how we may feel towards this topic, economics shows that a price set by government decree will necessarily obscure the signals that usually guide the allocation of resources. Excluding this one, explain the three consequences of a binding minimum wage as viewed by economists.

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