Minimum wage

This opinion reports the effects of recent hikes in minimum wage in the Bay area.

1. Higher prices in restaurants.
2. Restaurants closing.
3. Restaurants eliminating tips.

Minimum wage

This article reviews many academic studies of the impact of minimum wage. The conclusions are:

1. The range of estimates of the effects of the minimum wage on employment is wide.
2. The preponderance of the evidence points to disemployment effects;, i.e., an increase in minimum wage leads to less employment.
3. the evidence for disemployment effects seems especially strong for the least-skilled groups.
4. "We view the literature—when read broadly and critically—as largely solidifying the conventional view that minimum wages reduce employment among low-skilled workers, and as suggesting that the low-wage labor market can be reasonably approximated by the neoclassical competitive model."

CBO's recent analysis of the proposal to increase the minimum wage

The CBO estimates that the impact of raising the minimum wage to $10.10 on employment ranges from a slight decrease to a loss of 1 million jobs. The best estimate is implementation would reduce employment by 500,000 (and increase the unemployment rate by about 0.3%).

"Many more low-wage workers would see an increase in their earnings. ... The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO's estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates."

Australia reconsiders its minimum wage

After reading this article students might consider whether low economic growth, high minimum wage, or a combination drives up the unemployment rate?

The Outlook. Australia Weighs Whether Its Minimum Wage Is Too High
by: Rachel Pannett
Jan 27, 2015
Click here to view the full article on WSJ.com
TOPICS: Labor Markets
SUMMARY: The Outlook: Higher minimum-wage supporters in the U.S. often point to Australia as a low-unemployment country with one of the world's highest pay floors. Now, joblessness in Australia is rising, and some are calling for a decadelong slowdown in increases to the minimum wage.
CLASSROOM APPLICATION: Students can evaluate the effect of an increase in a country's minimum wage on the country's employment level.
QUESTIONS: 
1. (Advanced) What is the effect of an increase in a minimum wage on employment levels? Does the answer depend on the price elasticities of demand and supply for labor?

2. (Introductory) What are possible explanations for increases in Australia's minimum wage being contemporaneous with high employment levels in the country?

3. (Advanced) The column notes the relationship between the rate of increase in a country's minimum wage and its inflation rate. Why is it important to compare the increase in a country's minimum wage and its inflation rate?

Reviewed By: James Dearden, Lehigh University

Does the minimum wage spur automation?

This opinion in the WSJ argues that on effect of the minimum wage is for employers to substitute capital for labor.

Minimum wage, maximum vote

This opinion in the WSJ argues that increases in the minimum wage may be good politics but is bad economics.

Los Angeles may double the minimum wage

The article in the WSJ reports on a drive to increase L.A.'s minimum wage.

SUMMARY: A drive to raise L.A.'s minimum wage to nearly twice the federal level would turn the city into a prime test for whether high pay requirements help lift workers out of poverty or increase joblessness and blunt growth. Related article: A mandated 40% increase in labor costs will put people out of work. But, hey, anything to help get out the vote.
CLASSROOM APPLICATION: Students can use wage and marginal revenue product of labor to examine the effect of an increase in a minimum wage on firm-specific employment decisions and labor market supply and demand to examine the effect of a minimum wage on employment levels in a labor market.
QUESTIONS: 
1. (Introductory) What is the effect of an increase in a minimum wage on employment levels in the fast-food industry?

2. (Advanced) The related opinion piece states, "The other 24 employees are responsible for the remaining 75%, which comes to about $3,125 an employee. That is a generous estimate, as entry-level employees likely contribute less than their more experienced colleagues. If minimum-wage crew members working 25 hours a week received a 40% raise, they would earn an additional $3,705 a year. That is $580 more than what the employee contributes to the restaurant's profits." What important point is missing from this analysis? Hint: What is the effect of an increase in the wages paid by all competitors in a market on the equilibrium price of the market's product? Does this analysis imply that all fast-food outlets will lay off all employees, with the exception of the general manager? The opinion piece does continue with the following: "But here's what middle-class business owners, who live in the real world, will do when faced with a 40% increase in labor costs. They will cut jobs and rely more on technology.... The only other option is to raise prices."

3. (Advanced) Do customers of fast-food restaurants effectively pay for an increase in a minimum wage? If so, would the burden of a minimum wage increase fall primarily on lower-income households?

Reviewed By: James Dearden, Lehigh University