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Minimum wage labor market distortions

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As explained in Chapter 6, a minimum-wage law distorts the market for low-wage labor. To reduce this distortion, some economists advocate a two-tiered minimum-wage system, with a regular minimum wage for adult workers and a lower, 'subminimum' wage for teenage workers. Give two reasons a single minimum wage might distort the labor market for teenage workers more than it would the market for adult workers.

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Minimum wage laws distort the market by increasing the number of workers and decreasing the number of jobs available. Teenagers have a low marginal product, ...

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Minimum wage labor market distortions for teenage workers.

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Hiring and Productivity

Most firms require labor to produce output. The number of workers to hire is often an important decision of the firm because it affects the costs and profits of the firm. Write on the following issues:

1. Suppose you are the manager of the firm. What advice would you give the owners to raise the productivity of its labor? Be specific in your proposal.

2. What if the government raised the minimum wage. How would this policy affect your firm?

3. Use the readings from the background page. In general, do you think the government should intervene in the market?

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