In chapter 4 we learn about price floors and price ceilings. In the labor market, the minimum wage is a price floor. Like every price floor, the minimum wage causes a surplus. A surplus in the labor market is called “unemployment”. Those who are unemployed as a result of the minimum wage are represented on the supply curve (workers are sellers in the labor market) just to the left of the equilibrium quantity. Because of the price ceiling, this equilibrium is never reached…

Like any price floor, the minimum wage benefits the sellers in the market (the workers in this case). This can be seen as increased producer’s surplus. The price floor is bad for the employers because they are required to pay a higher price for labor. Higher labor costs are then passed on to customers.

So it seems that there are some significant trade-offs associated with our minimum wage laws. Basically we are trading efficiency (losing surplus/ creating dead weight loss) for equity (higher wages for the working poor.) We know that optimal decisions are made at the margin (from chapter 1), so let’s do some marginal analysis:

Marginal Benefit of Minimum Wage Laws:

• Low skilled workers get paid more than they otherwise would.

Marginal Costs of Minimum Wage Laws:

• Additional unemployment is created because employers hire fewer people (due to increased labor costs.)
• Consumers pay higher prices than they otherwise would (due to increased labor costs.)
• Firm owners are clearly worse-off.

So, is it worth it? Should we have minimum wage laws? Please take a position on the issue and support it with internet research (post a link to at least one article or website that passes the (Links to an external site.)CRAAP Test (Links to an external site.)). Then, please respond to the position of at least two classmates, and use research evidence to try to convince the individual (and the class) that you are correct.

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