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While US. states are required to have a minimum wage no lower than the minimum wage mandated by the Federal government, they are given discretion to...

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Screen Shot 2018-04-05 at 12.34.41 AM.png

Screen Shot 2018-04-05 at 12.34.41 AM.png

While US. states are required to have a minimum wage no lower than the minimum wage mandated by
the Federal government, they are given discretion to set a minimum wage above the Federal floor. The table and figure on the next page show the histories of both the Federal minimum wage and
California’s minimum wage from 1981 to 2018. The Fair Minimum Wage Act of 2007 legislated a
Federal minimum wage of $6.55 per-hour starting on July 24, 2008 and of $7.25 on July 24, 2009, where
it remains today. California raised its minimum wage to $9.00 on July 1, 2014 and $10.00 on January 1,
2016. In April of 2016, California Senate Bill No. 3 was signed into law. It specified increasing the
minimum wage to $10.50 and $11.00 on January 1 of 2017 and 2018, respectively, and raising it by one
dollar on January 1 of each subsequent year until it reaches $15 per-hour on January 1, 2022 (after which
it will be indexed to inflation). a) We are interested in the potential effects of the future minimum wage hikes on low—wage workers in
California’s strawberry industry, particularly on strawberry “pickers”. Suppose that the industry has a
very competitive output market (many strawberry firms), and that strawberry picking robots have
recently become easy to substitute for workers. (And ignore the fact that most pickers come from
cross—border migrant labor.) According to neoclassical labor demand theory, what is the likely effect of the minimum wage increases on the employment at aggregate earnings of strawberry pickers in
the short-run? W'hich Hicks-Marshall law(s) of labor demand is (are) relevant? What might be the
long—run impact of the wage hikes and which Hicks—Marshall law(s) is (are) relevant? b) Employers in California will face a minimum wage of $15 per—hour by 2022. Suppose Governor
Jerry Brown wants a forecast of the effect of this increase on state employment. To predict the
employment effects, the governor’s office correlates changes in California’s minimum wage between
1981 and 2016 with changes in the employment rate of low-wage workers over the same period.
Explain how this time—series analysis may be flawed and result in incorrect forecasts. 0) Some pundits have predicted that an increase in the national minimum wage will cause higher
unemployment, thereby reducing national productivity and growth. The government has given you
annual data on all working-age individuals in California and Texas between 1992 and 2005. These
data contain information on individual wages, state of residence, and employment status. Suppose
that the Texas minimum wage matches the federal minimum wage over this period. Explain how you
would assess the pundits“ claim with these data. In describing your research design, be sure to
discuss the comparisons that you will make and the reasons for your choice of treatment and control groups. d) Are there potential flaws with your design? Explain. How would you go about testing the validity of
your design using the data that you have? What if you received additional data on the age, education,
industry, occupation, gender, ethnicity, race and marital status of each individual during this period? e) Describe the methods and findings of one empirical study covered in class that examines the impact
of a minimum wage change on the employment of low wage workers. Is its evidence consistent with the neo—classical model of labor demand? Explain.

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