Advocates for $15-An-Hour Federal Minimum Wage Press Biden for a Meeting

EconEye Admin

4 years ago

The current federal minimum wage is $7.25 an hour. President Biden has urged Congress to increase the minimum to $15. Research shows that an increase in the minimum wage benefits women and workers of color, particularly in the South.—floridaphoenix.com

Answer the following questions to check your understanding of the story.

What will happen in the market for low-skilled labor if the federal minimum wage rises from $7.25 an hour to $15 an hour?

a) Unemployment will increase if the $15-an-hour wage rate is less than the equilibrium wage rate.

b) Neither employment nor unemployment will change.

c) Unemployment will increase if the $15-an-hour wage rate exceeds the equilibrium wage rate.

d) The supply of labor will increase but most of these workers will find jobs.

Wrong! - In what situation is a minimum wage effective? Would an increase in the minimum wage change the quantity supplied of labor and the quantity demanded of labor? Does the supply of labor change in response to a change in the minimum wage?

That's Right! - If the $15-an-hour wage rate exceeds the equilibrium wage rate, then at the higher wage rate, the quantity of labor supplied exceeds the quantity of labor demanded, and unemployment increases.

Does a rise in the minimum wage necessarily benefit women and workers of color?

a) Yes it does because they will earn higher incomes.

b) Yes it does because it gives the labor market a fair outcome.

c) No it doesn’t because they will need to be more productive to keep their jobs.

d) No it doesn’t because, with voluntary exchange blocked, discrimination may play a part in job allocation.

Wrong! - Does setting the minimum wage above the market equilibrium wage increase income for all workers? Does the higher minimum wage create a fair outcome? How are jobs allocated?

That's Right! - A minimum wage set above the equilibrium wage blocks voluntary exchange, so the wage rate no longer allocates labor. Instead, other mechanisms come into play, one of which could be discrimination against women and workers of color.

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