Jan 21, 2021

EconExtra: 20 States Increased Minimum Wage on January 1

EconExtra is a series of posts that go beyond the textbook, relating current events and recent developments in economics to content standards, and providing resource suggestions to help you incorporate the current events into your lessons.


The Issue

The impact of a higher minimum wage was on my list of topics for an EconExtra for a couple of reasons. First, as of January 1, minimum wage increases went into affect for twenty states (Yahoo Finance) (CNN) (Economist). Second, President Biden is now in office and has advocated for a Federal Minimum Wage of $15, although he still faces opposition (CNBC). A third confounding point was recently raised by Federal Reserve Governor Lael Brainard--unemployment among the lowest paid workers is currently around 20% (CNBC2).


How will this all play out, especially during the pandemic-related economic crisis? Before we can tackle that question, It is probably best to think about the driving forces of an increase in the minimum wage during more “normal” times first. Here are the areas of potential impact to examine.

  • Will increasing the minimum wage increase inflation?
  • Will increasing the minimum wage increase or decrease employment?
  • What other impacts might we see that are harder to quantify, like job satisfaction, or lower turnover, that might actually offset any hits to corporate profits?


The next step was to find materials to help us work through these questions. Ideally, they would include some lovely graphs with labor supply and demand curves. And I thought it would be good to see what economists think about the topic and to look for a review of empirical research on the impact.  I started down the Google rabbit hole.


Investopedia looks at the first question of whether or not increasing the minimum wage will increase inflation.  This article and brief (1 minute) video is a good starting point. 


In terms of the research, I wasn’t finding exactly what I was looking for. Noah Smith, PhD Economist who writes the Noahpinion newsletter and opinions for Bloomberg, must have been reading my mind, because his latest piece dated 1/15/21 showed up in my Ritholtz Reads email yesterday. This article covers the history of economic research and thought on minimum wage, and includes a couple of those lovely supply and demand graphs I was looking for!


Lesson Outline

A) Start with the current event: minimum wages increased in twenty states on January 1. You can use the first 2-3 articles listed in the first paragraph, and add the CNBC articles for more context. The CNN article has a table of these states with the new wage and how big the increase was. You can use it to see if there was an increase in your state.  Here is the table from the Economist article, which also introduces the concept of a living wage” if you want to include that concept in the conversation.

B) You can then present the issue(s)/question(s) you want to discuss (first set of bullet points). If you only want to discuss the inflation issue, you can use the Investopedia article and show the embedded video, then discuss and stop.

C) Students will likely need some time to work through the Noahpinion article, but the conclusions are pretty clear, and the traditional supply and demand curve explanations are useful.  It would be helpful to review the supply and demand diagrams with the students in real time, and maybe play around with them a bit.

D) Tearing into the Noahpinion article would then set you up nicely for a deeper dive into what is going on in your local economy. 

  • Who are the major employers?
  • What is your state's minimum wage situation?
  • What does the current employment picture look like in your town/city?
  • What is the cost of living in your town/city?


The Bureau of Labor Statistics “Economy at a Glance” data tool might come in handy when trying to answer these questions. Answers to these questions may help your students determine the impact of an increase in the minimum wage in your local market.

E) Assessment: Students could summarize what they have learned by making their own local policy recommendation on minimum wage, supported by data gathered in D) and using arguments from the article in C).





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