MICROECONOMICS PRINCIPLES WITH ETHICS

MODULE 20: Government Policies - Price Floors / Minimum Wages

Textbook Reading:

Presentation Slides:

Additional Useful Information:

Price Floor
This Wiki page provides an overview of the use of price floors by governments.

Raising the floor - What harm do minimum wages do?
This Economist article discusses some of the recent empirical results suggesting that minimum wage laws might not cause a loss of overall employment. However, it is careful not to use that evidence to suggest that minimum wage laws will be good overall.

Race, Politics and the Minimum Wage
This Wall Street Journal article discusses the possible negative consequences of a minimum wage law for black Americans.

The Business of the Minimum Wage
This New York Times article by economist Christina Romer discusses some of the uncertainties in knowing whether a minimum wage law would have the intended positive effects.

US Treasury on Promoting Competition in Labor Markets
This speech by Asst. US Treasury Secretary Ben Harris in Dec 2021 highlights the issue of monopsony power in labor markets and suggests at the end to revise real word markets to better reflect the competitive conditions of textbook models. LINK

How Washington Abandoned America's Unpaid Interns
This Atlantic article discusses the implications of applying the minimum wage law to "protect" young workers from exploitation. Students are encouraged to think about what effect such a policy shift would have on the supply of internship opportunities.

OVERVIEW

In this module we consider the effects of the government policy of a price floor, i.e., a minimum price that can be charged for a product in the market. When markets are perfectly competitive, it is shown that the unintended consequences of a price floor generally offset the desired effects and results in a loss in economic efficiency (i.e., national welfare). The most common application of a price floor is a minimum wage policy in the labor market. The full impacts of a minimum wage law is contrasted with the alternative assumption that the labor market is monopsonistic. In the latter case the minimum wage can raise economic efficiency and expand employment, unlike the effects in a perfectly competitive market.

VIDEO LECTURE

Price Floors (Minimum wages) : Background and Effects - 24 minutes

Effects of Labor Unions - 13 minutes

Pros and Cons of Minimum Wages and Labor Unions - 8 minutes

Minimum Wages in a Monopsony Market - 23 minutes