Lecture 7 2-2- 2012 and 2-7-2012

Lecture 7 2-2- 2012 and 2-7-2012 - 151 lecture 2-2 and...

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151 lecture 2-2 and 2-7-2012 Labor Demand Elasticities and the Minimum Wage 1. Introduction a. History of the MW in the U.S. --The FLSA of 1938 set a national minimum wage at .25 and it covered 43 percent of workforce. Initially, it was most binding in the South, where wages then were half the levels in the rest of the U.S. -- after WWII --Level and coverage increased periodically since. Coverage among nonagricultural workers is very close to 100 percent today; textbook is way out of date in saying it covers only 90 percent of the workforce. --Nominal versus real minimum wage. Real peak in 1968— somewhat lower today in real terms. Lower still relative to productivity growth. Minimum wage has also fallen as percent of average or median wage. --Tip credits in 43 states (not in CA) mean that minimum wage is as little as $2.30 for tipped workers. 1
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b. International comparisons Minimum Wage Source: OECD % of median full-time wage 2003 Level in US $ using current exchange rates 2004 Australia 57 8.50 Belgium 47 8.60 Canada 41 5.40 France 61 9.30 Greece 49 3.90 Ireland 38 8.70 Japan 31 6.10 Luxemburg 54 10.10 Netherlands 51 9.10 New Zealand 46 5.90 Spain 29 3.40 United Kingdom 44 8.40 United States 32 5.15 2
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2. Current policy context and issues --National MW today is $7.25; numerous states now mandate a higher minimum. CA is at $8 and some other states (OR, WA, AK, MA, VT and CT) are near to or exceed $8 or $9. --In 2007 Democrats advocated raising the minimum wage nationally to $7.25 over two years. Republicans advocated letting states set their own minimum wage, including opting-out of any national level or mandating tip credits in all states. Compromise was to increase it over three years. --Generally, raising the minimum wage is very popular in opinion polls (around 80%) and among voters (support is usually at 60 to 70%), but unpopular with some sectors of small business, especially restaurant associations. --Obama’s 2008 campaign platform: raise MW to $9.50 by 2011 and index it to inflation. Romney says index to inflation only. Gingrich, et al.: abolish the MW. --Alternative policies: some economists argue that the EITC should substitute for rather than complement the minimum wage. --In last ten years, over 100 municipalities have passed living wage ordinances—affecting mostly employees of municipal service contractors. 3
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--Four cities (Albuquerque, NM, San Francisco, Santa Fe, NM and Washington DC) have implemented city-wide minimum wages covering all employees. SF min. wage now over $10. 3. Who are the MW workers? --In 2006, about 23 percent of 16-19 year olds worked at or within a dollar of the MW. --Percent is much smaller for workers over 25.
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This note was uploaded on 02/21/2012 for the course ECON 151 taught by Professor Staff during the Spring '08 term at Berkeley.

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Lecture 7 2-2- 2012 and 2-7-2012 - 151 lecture 2-2 and...

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