Peter J Wilcoxen > PAI 300 Economics for Policy Analysis

D23: Evaluating a Minimum Wage

Use the spreadsheet in Teams to analyze the impact of a proposed $15 minimum wage on a small community.

As shown at the top of the spreadsheet, the initial wage prior to the change is $12 and the initial employment is 10,000. The government believes the elasticity of demand for labor is -0.5 and the elasticity of supply for labor is 0.5. That's the "central case" shown in the table.

In addition, the government would also like to know how the results would change if the elasticities were actually higher or lower than the central case: those are the "Low D", "Low S", "High S" and "High D" cases. Evaluating alternative cases to see how key results are affected by parameters and assumptions is known as sensitivity analysis.

Please start by analyzing the central case:

  1. Some of the cells are already filled in and don't need to be changed: the initial conditions, the proposed wage, and the elasticities for the 5 cases.
  2. Fill in appropriate formulas near the top for the change in the wage (`\Delta` wage) and the percent change in the wage (%`\Delta` wage).
  3. Fill in the "Central" column with appropriate formulas. The last one, "%CS to job keepers" should be the PS gained by job keepers divided by the CS lost to employers. It's a quick way to see how successful the policy is at transferring money from employers to employees who keep their jobs.

If you have time once you've finished the central case, do the sensitivity analysis:

  1. Copy the central formulas to the other columns. If all has gone well in setting up the central column, this should be just a matter of copying and pasting the formulas.
  2. Add a bar graph showing the %`\Delta` in employment for each of the cases. Adjust the X axis labels to be "high" (above the bars) and add data labels so the percentages show below the ends of the bars. Set the title to "Impact on Employment".
  3. Add a second bar graph showing the impact on SS for each case. Set it up in a similar way to the first graph but set the title to "Impact on SS".
  4. Answer the questions at the bottom.

Save and submit the results.

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    Peter J Wilcoxen, The Maxwell School, Syracuse University
    Revised 02/29/2024