Evaluating Policy Predictions with Labor Models
An economic advisor is analyzing a proposal to significantly increase the national minimum wage. The advisor points to a major historical trend from the 20th century: as average real wages rose across the economy, average weekly work hours fell. Based on this, the advisor predicts that the minimum wage hike will cause the affected low-wage employees to choose to work fewer hours. Using the economic model that breaks down a wage change into its component effects on an individual's choice between labor and leisure, critique the advisor's prediction. Explain why the aggregate historical trend might not accurately predict the behavior of this specific group of workers.
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CORE Econ
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Economics
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
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The historical observation that average working hours in many industrialized nations have decreased over the last century while real wages have steadily increased is sufficient evidence to conclude that, for any individual worker, the desire for more leisure as their income rises will always outweigh the incentive to work more to earn a higher hourly pay.
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Evaluating Policy Predictions with Labor Models
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