On Nov. 8, Nebraska voters will decide a ballot measure that would raise the minimum wage in four steps to $15 an hour by 2026. The tools of supply and demand analysis that I teach in my Principles of Economics courses can help us understand the likely results if the measure becomes law.
The core tools of economics are supply and demand curves. The equilibrium price is where the supply and demand curves cross. Economists think that the equilibrium price is a good price in some ways. At that price, the quantity supplied is equal to the quantity demanded. The market clears, maximizing the number of mutually beneficial transactions. At any other price, you have either a shortage or a surplus.
In the labor market, if you force the price above the equilibrium, as you do when the government imposes a minimum wage, the market no longer clears. The quantity of labor supplied is greater than the quantity of labor demanded. Another word for that is “unemployment.”
Voters may still want to vote to increase the minimum wage. But they should know that although some workers will benefit from a higher wage, others will be hurt by losing their jobs.
This conclusion from economic theory is generally confirmed by analysis of economic data. Economists David Neumark and Peter Shirley published a paper this month in which they survey 30 years of empirical research papers by economists on the effects of the minimum wage. A majority of these papers support the conclusion that one effect of...
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