Question

The debate on the effects of raising the minimum wage is ongoing. A few years ago, Seattle, Los Angeles, and San Francisco passed laws to gradually raise the minimum wage to $15/hour. Beaudry, Paul, David A. Green, and Ben M. Sand (investigated the possible effects of these laws on the labor market and concluded that "...for workers below $10 per hour in Seattle, the employment rate declines by over 10 percent in response to raising the minimum wage to $15. Meanwhile, for the larger group with wages at or below $15, the decline is approximately 7 percent." The authors' conclusion is consistent with the specific economic theory discussed in the course that

Answer 1

Answer:

The findings are consistent with the specific economic theory about minimum wage that is held by mainstream, neoclassical theories.

According to this theory, a minimum wage is essentially a binding price floor: a minimum price (in this case, the price of labor, which is the wage) set by the government that is above the market rate.

what happens when imposing this binding price floor is that the supply of labor (workers) becomes higher than the demand (the firms that hire the workers), leading to oversupply. In other words, some workers are left unemployed because there is no demand for them at the price set by the government.

The findings are consistent with this economic theory.