For the last week of classes before our series of rapid-fire in-class presentations (my there are a lot of you) we will study the minimum wage using the methods and ideas presented in class. We will study the standard neo-classical theory of labor markets and how minimum wages affect labor markets, and then think about how realistic the neo-classical model is and what kinds of other complexity we might add and how this might alter how we view minimum wages.
We will then proceed to think about how one might test for the effects of minimum wages using real-world data. We will think about the causality and identification problems and how these might be overcome. We will than proceed to examine a series of studies to attempt to get a sense of where the literature stands on the issue.
After this, on Wednesday, we will think about minimum wages in policy terms: what is the market failure we are trying to correct and is it the best was to do so. We will compare alternatives to minimum wages, most notably the Earned Income Tax Credit. Finally we will think about the appropriate pieces of a cost-benefit analysis of the Oregon minimum wage and the lack of an exemption for tips. We will finish with a specific examination of the Oregon restaurant industry: how is it probably affected by the state minimum wage law.
To begin, here is a provocative graph I threw together last night using BLS data on state unemployment rates and US Department of Labor data on state minimum wages:
Is this graph meaningful?