Teaching the minimum wage and economic justice

The conventional approach to teaching the minimum wage is to focus on the market-level impacts of the policy. This might involve the traditional model of supply and demand, or less commonly, a monopsony model or a search model of the labour market. These approaches share in common the focus on the labour market itself. Through teaching using the market as a lens, we lose focus on the workers who are receiving the minimum wage.

I recently read this interesting 2013 article by Aaron Pacitti and Scott Trees (both Siena College), published in the journal Forum for Social Economics (sorry, I don't see an ungated version online). Pacitti and Trees outline an in-class exercise for teaching the minimum wage from the perspective of workers, and in particular considering the associated social and ethical issues. The exercise is very simple, and involves groups of students working together to prepare a budget for a single 22-year-old with no spouse or dependent children, who works full-time for the minimum wage. It is not an easy task, and there are lots of trade-offs involved, and the money does not stretch very far (especially when you consider housing costs!). After the groups have completed their task, the lecturer can work through a class discussion of the various spending categories and how much each group allocated to them, which I think would further identify just how little the minimum wage can really buy. Pacitti and Trees note that:

Once students are challenged to prepare a detailed budget by spending category, they quickly realize that minimum wages do not generate enough income to support a sustainable standard of living, defined as the income necessary to maintain proper health, nutrition, and living arrangements without receiving any form of government, family, or charitable assistance. Results from using this exercise suggest that class discussion quickly moves beyond the blame-the-victim arguments that are commonly heard from students. The exercise shifts the analysis away from the market nexus and individual choice models, and toward the social, institutional, political, and ethical dimensions of minimum wages, giving students a broader and more holistic perspective on economics.

Pacitti and Trees also suggest a number of extensions, including more realistic scenarios (for people with debt repayments, those looking for a new job, or those with a family to support). They also suggest some further discussion points, including economic justice (that is, whether the outcome is ethical or fair), normative economic policy and distributional issues, and economic alternatives to the minimum wage.

All of this seems so obvious, but the problem may be trying to squeeze an exercise like this into an already crowded curriculum. However, it is likely that there are large gains to be made, not least in having students appreciate that market participants are not simply chess pieces to be moved around (which is one of the fallacies that Thomas Sowell cites in his book Economic Facts and Fallacies, which I reviewed here). And it can easily be extended into an interesting assignment for assessing students. I'll have to seriously consider whether this is something that I can fit into one of my papers.