Question

What types of information would you want to know if you were to make a normative judgment about increasing the minimum wage?

Answer 1

Increase in minimum wage will decrease the quantity of labor demanded and increase the quantity of labor supplied, causing a surplus in labor market, which will increase unemployment. Therefore, the pertinent information required to decide on such increase will be:

(i) Whether the higher minimum wage will hurt current workers who will lose job

(ii) Whether the higher minimum wage will cause a shift from higher-wage skilled jobs toward a lower-wage unskilled job, and

(iii) If such shift in (ii) takes places, whether such change in worker profile will reduce productivity, since lower productivity will lower long run economic growth.