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WELLESLEY COLLEGE DEPARTMENT OF ECONOMICS ECONOMICS 201-03 JOHNSON UNIT I -- INTRODUCTION; SUPPLY & DEMAND Readings !: As we move through the semester, we will occasionally provide readings that apply our concepts and theories to real world phenomena. Here, we offer commentaries on minimum wages, global trade (and its effects on labor markets), and rent control. These readings are certainly not meant to be exhaustive, nor are they chosen to convince you ofthe superiority of a certain economic policy. We intend them as fodder for those who wish to compare fact with opinion, who wish to leave Econ 201 with abilities not limited to shifting curves, solving for equilibria, deciding whether functions are linear or log-linear, or delineating left shoe/right shoe preference structures! With knowledge of markets and elasticities, however, you have opportunities to identify the effects ofany policy and decide for yourselfwhether efficiency is sacrificed for equity. Be an informed citizen-economist in the public policy arena; the world might someday thank you (as will I when I'm very old and you're still a vibrant member ofthe labor force!). Also, as we have done in class, recognize that these offerings contain SUGGESTIONS (with solid positive economics behind them) for BETTER policies! Enjoy!
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Economist.com http://www.economist.com/fmance/PrinterFriendly.cfm?story_ id=49492~ FIWa &m:llIOMICS Eco[1om ist.l'om ECONOMICS FOCUS Economics focus Debating the minimum wage Feb 1st 2001 From The Economist print edition When governments put a regulatory floor under wages, does that destroy jobs? An update on a long-running dispute THE story so far. For many years economists took it for granted that a compulsory minimum wage, set much above the floor that emerges in an unregulated labour market, would reduce employment. Young or unskilled workers would be unable to find work at the mandatory minimum: the bottom of the demand curve would be chopped off. Of course, if the minimum were so low as to impinge on none of the wage bargains actually being struck, there would be no effect. The higher the minimum wage, once it starts to bind, the bigger the loss of jobs. The possibility that a minimum wage would not reduce employment, and might even increase it, was acknowledged. This could happen through market failure of some kind. Suppose, for instance, employers have monopsony power as buyers of labour: they will curb their demand, to drive wages lower. A minimum wage could remedy this, raising wages and expanding employment at the same time. But in a normal, competitive labour market, this should not arise. Then along came David Card and Alan Krueger, two of America's most distinguished labour economists. They looked at the
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