Question

Assume that the minimum wage has just been increased by 25%. Explain briefly why each of the following statements is true, false, or uncertain from an economic perspective.

1. If a company cannot increase the prices of the products it sells, it will absorb the wage increase (and continue operating & employing workers at the higher wage) as long as it can still earn positive economic profits after doing so.
2. If a company cannot increase the prices of the products it sells, it will absorb the wage increase (and continue operating) as long as it can still earn positive accounting profits after doing so.

3. Once this new law is in effect, some firms might find it advantageous to replace workers with machines.

4. We should be able to quantify the negative effects (if any) of this law on unemployment quickly, probably within the first two to three months.

Answer 1

It would be the first increase in a decade. The House passed a bill on Thursday to double the federal minimum wage to $15 an hour. This would mark the first increase to the rate in more than a decade and the highest increase ever. A total of 231 members voted in favor of the Raise the Wage Act, and 199 opposed it.Jul 18, 2019

Research Shows Minimum Wage Increases Do Not Cause Job Loss. Extensive research refutes the claim that increasing the minimum wage causes increased unemployment and business closures. ... The unemployment rate went from 3.8% in 1967 to 3.6% in 1968 to 3.5% in 1969.