Principles Of Macroeconomics: A Labor Market With A Minimum Wage?

What is Minimum Wage In 1938 Fair Labor Standards Act, the United States Congress instituted a minimum wage to ensure workers receive a minimally acceptable standard of living (Mankiw, 2015, p. 117). Many countries have a minimum wage, which is a law that does not allow an employer to pay an employee under a certain amount. An example of minimum wage in France is 9.40 euros per hour (Mankiw. 2015, p. 118), which equates to approximately $10.57 USD (Mankiw’s original text indicated the minimum wage at about $12 USD per hour; however, the euro has changed and the current exchange rate is about 1.124). In the United States minimum wage is described as “the federal minimum wage for covered nonexempt employees is $7.25 per hour effective July

Free labor market supply and demand curve was adapted from Mankiw (2015) Figure 5 - p. 118: Mankiw, N.G. (2015). Principles of macroeconomics (7th ed.). Stamford, CT: Cengage Learning.

Elasticity Conditions Resulting from Increase to Minimum Wage While there is much debate about the elasticity of labor if the minimum wage is increased, “most labor economists believe that the supply of labor is much elastic than the demand; this means that workers, rather than the firms would bear most of the burden” (Mankiw, 2015, p 127). Assuming this is true then having an understanding of how supply and demand curves react will help develop a theory for when the minimum wage is increased. If the labor supply is inelastic and the demand for labor is moderately elastic, then the supply curve is steeper and the demand curve is flatter. In this instance, a change to the minimum wage would have less effect on the firm; as the number of workers at or near the minimum wage is small compared to the workers who would not be affected by a binding wage imposed by the change. Another view by Leif Danziger (2009) is that low wage workers as a whole would benefit from an increase in their wage incomes. The workers would