Overview
The case study discusses the Federal minimum wage:
1. Suppose the minimum wage is above the equilibrium wage in the market for unskilled labor. Using a supply and demand diagram of the market for unskilled labor, show the market wage, the number of workers who are employed, and the number of workers who are unemployed. Also, show the total wage payments to unskilled workers.
2. Suppose the Louisiana Manpower Commissioner proposes an increase in the minimum wage. What effect would this increase have on employment? Does the change in employment depend on the elasticity of demand, elasticity of supply, both demand and supply elasticities or neither?
3. What effect would this increase in the minimum wage have on unemployment? Does the change in unemployment depend on the elasticity of demand, elasticity of supply, both demand and supply elasticities or neither?
4. If the demand for unskilled labor were inelastic, would the proposed increase in the minimum wages raise or lower total wage payments to unskilled workers? Would your answer change if the demand for unskilled labor were elastic?
5. Explain in detail using market analysis the case for minimum wages? What is the argument against minimum wages? Do you think minimum wages would have a far greater impact in reducing poverty? Explain.
6. Have you ever worked for the minimum wage? If so, for how long? Would you favor increasing the minimum wage and by how much? Explain your reasoning.