Minimum wage laws kick in

Minimum Wages Set to Increase in Many States in 2017
by: Eric Morath
Dec 31, 2016
Click here to view the full article on WSJ.com

TOPICS: Labor Economics

SUMMARY: About 4.4 million workers across the country are slated to receive a raise at the start of the year, a shift that may shed light on a debate about the effects of mandated pay increases at the bottom of the wage scale.

CLASSROOM APPLICATION: Students can use supply and demand to examine the benefit to workers of an increased minimum wage and the cost in terms of decreased job creation and increased unemployment. "Economists and policy makers are of two views on the costs and benefits of minimum-wage increases. While the policy puts more money in the pockets of low-wage workers, it also gives employers less incentive to add to their payrolls, leaving some workers behind. A 2014 study from the nonpartisan Congressional Budget Office found raising the federal minimum wage to $10.10 an hour would reduce job creation by 500,000 over two years. At the same time, the report estimated that the increase in the federal minimum wage would raise the pay of 16.5 million workers who kept their jobs."

QUESTIONS: 
1. (Introductory) What is the effect of raising the minimum wage on the willingness of firms to expand the sizes of their operations?

2. (Introductory) What is the effect of raising the minimum wage on the willingness of businesses to invest in automation that eliminates jobs?

3. (Advanced) What is the effect of raising the minimum wage on U.S. imports and on U.S. exports?

4. (Advanced) Describe the tradeoff involved in a state raising its minimum wage.

Reviewed By: James Dearden, Lehigh University