Minimum Wage Simulation

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Let 's begin with a simple walk-through of the theoretical neo-classical model of the labor market, where wages are represented on the y-axis and employment is represented on the x-axis. Within this framework, workers who supply their labor to the market provide less labor at lower wages and more labor at higher wages, which is represented by an upward sloping labor supply curve. Employers, who demand labor as one particular input to production, will demand less labor at higher wages and more labor at lower wages, which is represented by a downward sloping labor demand curve.Unlike the market for goods and services, the demand curve in the labor market represents firms, while the supply curve represents individuals, rather than the other way …show more content…
An often-quoted classical estimate is that a 10 percent increase in the minimum wage would reduce the affected employment, usually of teenagers, by 1 to 3 percent (Brown et al., 1982).The definition of who is included in this representation of the labor market of course matters. I use the term affected employment in order to distinguish these minimum wage workers from all workers. Neumark and Wascher (2007), in an updated review of this literature, found that “A sizable majority of the studies ... give a relatively consistent (although not always statistically significant) indication of negative employment effects of minimum wages.” For Canada, Baker et al. (1999) found an employment elasticity of -0.25 for affected workers, within the previous bounds, while Campolieti et al. (2006) identified a range of -0.14 to -0.44 and Sen et al. (2011) found a range of -0.3 to -0.5. Using the combined widest bounds from these Canadian estimates (i.e. -0.1 to -0.5), the 47 percent increase in Alberta 's minimum wage would result in a 4.7 to 23.5 percentage reduction in affected employment. Even if the responsiveness were at the lowest end of this scale, this would still be a significant loss (i.e. ~ 5 percent) given the size of the minimum wage increase that Alberta is

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