Analysis of Labor Markets

Policy Memo on Minimum Wage

Guidelines

Readings

• Read the relevant sections in the Borjas book on minimum wages.
• Read the policy memo by Arindrajit Dube titled "Designing Thoughtful Mini- mum Wage Policy at the State and Local Levels". (Posted on D2L)
• Read the op-ed article by Harry J. Holzer titled "a $15-hour Minimum Wage Could Harm America's Poorest Workers". (Posted on D2L)

Writing a Policy Memo

Suppose you are advising Governor Rick Snyder on whether Michigan should raise its minimum wage to 15 dollars an hour, as proposed by the Obama Administration. Write a three (3) page policy memo on the benefits and costs of a higher minimum wage. Give your policy recommendation and explain your reasoning.

Your policy memo should cover these elements: (These questions help you to think about this issue. Your policy memo should not be simply providing answers to these questions. You should organize your argument and evidence coherently to support your policy recommendation.)

• What does labor economic theory say about the impacts of a higher minimum wage on labor demand, labor supply, minimum wage, and unemployment rate?
• Are there other benefits and costs of a higher minimum wage?
• Who will mainly benefit from a higher minimum wage? Who will mainly be hurt by a higher minimum wage?
• What is the current minimum wage in the State of Michigan? Is it higher, the same, or lower than the federal minimum wage? When the last time min- imum wage was was raised in the State of Michigan?
• Do you think the proposed minimum wage rate too high, too low, or appropriate for Michigan? What is your policy recommendation to Governor Rick Snyder on minimum wage?

Your policy memo can, but does not have to, address some of the following questions

• How does the minimum wage in Michigan compare with those in neighboring states such as Ohio, Indiana, and Illinois? How does the federal minimum wage in the United States compare with other developed countries?
• Are minimum wages in the United States indexed by inflation? What does it mean to the real values of minimum wage set years ago?
• Should the state allow counties and cities to decide their own minimum wage?
• According to Dube, what is the the targeted minimum wage in Michigan? How did he come out with the value? Do you agree with his method?
• According to Holzer, what are the main reasons why a $15 per hour minimum wage could harm America's poorest workers?
• What are the current economic conditions in Michigan? What is its long-run economic perspective? Do you think a higher minimum wage will benefit or hurt the state economy? Why?
• Can a higher minimum wage be good for lowering government expenditure on welfare programs? Can it lower the poverty rate? Why?