Introduction to
Economics:
Social Issues
and Economic
Thinking
Wendy A . Stock
CHAPTER 10
THE MINIMUM WAGE
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Po w e r Po i n t
Prepared by
Z. Pan
AFTER STUDYING THIS CHAPTER, YOU
SHOULD BE ABLE TO:
 Define the minimum
wage
 Describe the history
of the minimum wage
 Describe the
difference between
the real and nominal
values of the
minimum wage
 Assess the
theoretical impacts of
the minimum wage on
the labor market
Copyright © 2013 John Wiley & Sons, Inc.
 Explain why
minimum wage laws
are controversial
 Describe research
findings regarding
impacts of the
minimum wage
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CONTROVERSIAL MINIMUM WAGE
 In 2006, Colorado passed a law that
automatically adjusts Colorado’s minimum
wage to keep pace with the prices of food,
housing, and other goods and services.
In 2010, Colorado policymakers were bound
by law to lower the minimum wage from
$7.28 to $7.24 per hour.
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THE MINIMUM WAGE
 The Minimum Wage is the lowest wage that
employers can legally pay workers.
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HISTORY OF MINIMUM WAGES
 Fair Labor Standards Act (FLSA) in 1938
 The FLSA also includes provisions mandating time
and one-half overtime pay and restrictions on the
use of child labor.
 The Fair Minimum Wage Act of 2007
 The Nominal Value of the minimum wage is
expressed in current dollar values and is not
adjusted for inflation.
The Real Value of the minimum wage is
expressed in constant dollar or inflationadjusted values.
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HISTORY OF FEDERAL MINIMUM WAGES
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STATE-LEVEL MINIMUM WAGES
 States also have their own minimum wage
laws.
 Thirteen states higher than the federal level
 Five states lower than the federal level
 Other states the same as the federal level.
 When state and federal minimum wages are
different, workers are entitled to whichever
minimum wage is higher.
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DEMAND FOR LABOR
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SUPPLY OF LABOR
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THE IMPACT OF A MINIMUM WAGE IN
THE LABOR MARKET
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10
UNEMPLOYMENT
Unemployment occurs when there is a surplus of
labor in the market.
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BELOW-EQUILIBRIUM MINIMUM WAGE
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IMPACTS OF MINIMUM WAGE: WORKERS,
BUSINESS & CONSUMERS
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WHY ARE MINIMUM WAGES
CONTROVERSIAL?
 Minimum wages create winners and losers
 Proponents’ Arguments:
 It helps the poor by raising their income
 No direct expense for taxpayers
 Better employment incentives than welfare
programs
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WHY ARE MINIMUM WAGES
CONTROVERSIAL?
 Opponents’ Arguments:
Minimum wages benefit few poor workers at the
expense of other poor workers, businesses, and
consumers.
 Minimum wages create more unemployment
 Discourage firms from investing in training for
workers
 Businesses tend to raise the prices of their
products, increasing costs for consumers
 Businesses tend to use substitute inputs like
machines or lower-cost workers in foreign countries
instead of domestic workers.
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MINIMUM WAGE RESEARCH
Findings about Impacts of Minimum Wages on:
 E mployment: somewhat mixed results
 School enrollment: increases in
minimum wage are associated with
increased high school dropout rates.
 Poverty: minimum wages are associated
with slight increases rather than
decreases in poverty.
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QUESTIONS/DISCUSSIONS
1) Why has the real value of the
minimum wage declined since 1968,
even though the nominal value of the
minimum wage has increased several
times since then?
2) Are teenagers better off when a
higher minimum wage enables some
to get higher wages but causes others
to lose their jobs?
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KEY CONCEPTS
•
•
•
•
Minimum wage
Nominal value of the minimum wage
Real value of the minimum wage
Unemployment
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