Question

The minimum wage:

a. What are the economic effects predicted by the standard perfectly competitive labor market model?

b. What are the theoretical and empirical implications of incomplete coverage?

c. Demonstrate the theoretical importance of the ceteris paribus assumption in estimating any disemployment effect of the minimum wage.

d. Explain how intersectoral shifts in product demand might confound empirical estimation of the impact of the minimum wage.

e. Show the implication of the monopsony model on the impact of the minimum wage, and know the limitations of the monopsony model to generate different employment and unemployment effects.

f. In the monopsony model, how can a minimum wage simultaneously increase employment and unemployment?

g. How effective is the minimum wage in combating poverty? In answering this question, cite the findings from research done on the minimum wage hike in the mid-2000s to $7.25 and the current proposal to increase it to $10.10. (See Power Points: "Distributional Impacts of Min Wage" and "Min Wage Profile and CBO Report.")

h. The Congressional Budget Office estimates that the $10.10 proposal will result in a 500,000 job loss, and the report offers reasons why the CBO believe this minimum wage increase might have a larger impact on employment than some others in recent history. What are those reasons?

Answer 1