A floor under the lowest wage
You are presenting to
The U.S. Department of Labor, Office of the Chief Economist
The prompt
The federal minimum wage has not moved since 2009, and proposals to raise it have revived debate over the wage floor — a price floor that can lift earnings for low-paid workers but may also reduce the hours employers offer, push costs into consumer prices, or accelerate automation. Policymakers must weigh these effects against how any approach would affect earnings, access to work, long-run costs, equity, and the very different labour markets of a country where the median wage in one state is nearly double that in another. Your team is presenting to officials at the Department of Labor. Explain the economic impacts of a wage floor, weigh the alternatives to raising it, and offer a clear path forward.
The economics you are expected to explain
A minimum wage is a price floor on labour. Set below what the market already pays, it does nothing at all. Set above it, and the quantity of labour employers want falls while the quantity workers want to supply rises. The textbook calls the gap unemployment.
The textbook is not the whole story, and a strong presentation says so. Where a few employers dominate hiring in a town, they can hold wages below what an extra hour of work is worth to them. In that case a floor can raise pay and employment at the same time. This is not a loophole; it is a well-documented finding with a well-documented ceiling on how far it stretches.
Employers who cannot cut wages have other margins. They can raise prices, cut scheduled hours, tighten staffing, hire more experienced workers for the same money, or buy a machine. Each of those moves the cost onto a different group, and only some of them show up in the unemployment rate.
Then there is the question a national number cannot dodge. The same floor is a modest adjustment in one state and a large shock in another. What matters is not the dollar figure but the bite — the floor as a share of the local median wage.
The situation
| Federal minimum wage | $7.25 — unchanged since July 2009 |
| Real value at its 1968 peak | ≈ $13.50 in today's dollars |
| States at the federal floor | 20 |
| Highest state floor | ≈ $17.50 |
| US median hourly wage | ≈ $23.50 |
| Median hourly wage, Mississippi | ≈ $17.80 |
| Median hourly wage, Massachusetts | ≈ $29.90 |
| Hourly workers at or below $7.25 | ≈ 1% of the hourly workforce |
Figures are approximate and provided for the exercise. If you use a number in your presentation, cite it from the Bureau of Labor Statistics or the Department of Labor directly.
Your constraints
- Federal policy only. You cannot legislate for a single state.
- One recommendation, not a list of things worth doing.
- If it costs money, say where the money comes from.
- It must survive a change of administration — no policy that only works if everyone agrees with you.
What your recommendation has to weigh
A recommendation that only counts the gains is not a recommendation. The panel is looking for all five of these, handled honestly.
Earnings
A binding floor raises the wage of everyone who keeps their hours. That is the whole point, and it is a real gain worth defending.
Access to work
If the floor sits above what an employer will pay for an hour of low-experience labour, some of those hours stop being offered. Who loses them matters more than how many.
Long-run cost
Employers can absorb a floor through prices, hours, scheduling, or automation. Each shifts the cost somewhere different, and some of those shifts take years to appear.
Equity
Most minimum-wage earners are not teenagers, and most poor households have no one earning the minimum because they are not working at all. A wage floor cannot reach them.
Regional fairness
$15 is a different policy in Jackson than in Boston. A national number binds hard in low-wage states and does nothing in high-wage ones.
Options on the table
Starting points, not a menu. Every one of these has been argued seriously by economists and every one costs somebody something. There is no answer the judges are waiting to hear, and a direction not listed here is entirely fair.
Raise the uniform federal floor
Pick a national number and phase it in. Simple to legislate and to explain, and it reaches the low-wage states nothing else reaches. The bite is severe where median wages are lowest — exactly where the political case is strongest.
Index the floor to local wages
Set the floor as a share of each area's median wage — half, say — so it adjusts automatically to local conditions. Economically tidy. Ask how a worker is meant to plan around a wage that moves with a statistic, and what happens at county lines.
Expand the Earned Income Tax Credit instead
Raise take-home pay through the tax code rather than the wage. Reaches poor households more precisely and does not price anyone out of a job. It is paid by taxpayers rather than employers, and some of it is captured by employers as lower pre-tax wages.
Subsidise the wage directly
Government pays part of the hourly cost for low-wage workers, so the worker gets more without the employer paying more. Splits the difference between the two above. Ask what it costs, and what stops it becoming a permanent subsidy to low-wage business models.
Leave the federal floor alone
Thirty states and many cities have already moved past $7.25, and the federal minimum now binds for around one percent of hourly workers. Argue that the states are doing this better than Washington can, and that the binding constraint is elsewhere.
What separates a strong recommendation
Explains what a price floor does before arguing about this one — and says plainly when it binds and when it does not.
Engages the monopsony argument honestly. If employers have wage-setting power, a floor can raise pay without cutting jobs. That is a real finding, and it has limits.
Distinguishes the number from the design. Phase-in length, indexation, and regional variation change the effect more than the headline figure.
Names who pays: consumers through prices, workers through hours, employers through margin, or taxpayers through the tax code.
Says what evidence would show the policy had failed, and when you would know.
Deliver it as you would in the competition
A 6–8 minutes recorded video over a Google Slides deck, presenting one policy and defending it. Individual, or a team of two to four with every member speaking.
The live theme is released to registrants when the competition window opens and is never published in advance. This case is here so the format is familiar before it arrives.
$600 in cash prizes across the top three.