Minimum Wage Experiment: Warm-Up Exercise
You are an employer that can hire either 0, 1, or 2 laborers.
If you hire 0 laborers, you will produce 0 output. If you hire
1 laborer, you will produce $30 worth of output. If you hire
2 laborers, you will produce $50 worth of output.
•Suppose that you have to pay a wage of $35 for each laborer
that you hire, what will your profits (or loss) be if you hire: 0
laborers? ….1 laborer? ….2 laborers? How many
laborers should you hire in order to maximize your profits
(minimize your losses)?
•Suppose that you have to pay a wage of $25 for each laborer
that you hire, what will your profits (or loss) be if you hire: 0
laborers? ….1 laborer? ….2 laborers? How many
laborers should you hire in order to maximize your profits
(minimize your losses)?
• Suppose that you have to pay a wage of $15 for each laborer that you hire,
what will your profits (or loss) be if you hire: 0 laborers? ….1 laborer?
….2 laborers? How many laborers should you hire in order to maximize
your profits (minimize your losses)?
• Assuming that you have to pay the same wage to each employee, what is
the highest wage at which hiring 1 laborer is more profitable than hiring 0
laborers?
• Assuming that you have to pay the same wage to each employee, what is
the highest wage at which hiring 2 laborers is more profitable than hiring 1
laborer?
• Suppose that you are a laborer and your reservation wage is $12. You are
offered a job at a wage of $10. What will your profit (or loss) be if you take
the job? What will be your profit (or loss) if you do not take the job?
• Suppose that you are a laborer and your reservation wage is $5. You are
offered a job at a wage of $10. What will your profit (or loss) be if you take
the job? What will be your profit (or loss) if you do not take the job?
Table 1. Distribution of Types of Employers and Laborers
Session 1
Participant Type
9
Employers
12
Laborers [$12 = rw]
12
Laborers [$5 = rw]
Session 2
9
12
12
Session 3
9
12
12
Table 2. Unemployed Laborers and Their Reservation Wages
Session 1
Session 2
Session 3
Unemployed [rw=$12]
11
7
0
Unemployed [rw=$5]
1
8
0
Table 3. Session 1: No Minimum Wage
Firm ID
1
2
3
4
5
6
7
8
9
1st Laborer
Wage
$11
12
10
10
9
12
9
9
11
RW
$5
5
5
5
5
12
5
5
5
2nd Laborer
Wage RW
9
5
9
5
9
5
Table 4. Session 2: Binding Minimum Wage
Firm ID
1
2
3
4
5
6
7
8
9
1st Laborer
Wage
$15
15
15
15
15
15
15
15
15
RW
$12
5
12
12
5
5
5
12
12
2nd Laborer
Wage RW
Table 5. Session 3: Non-Binding Minimum Wage
Firm ID
1
2
3
4
5
6
7
8
9
1st Laborer 2nd Laborer 3rd Laborer
Wage RW Wage RW
Wage RW
$18 $12 $18
$12
$18
$5
18
5
18
12
18
5
19
5
19
12
19
5
20
5
20
12
20
12
19
12
18
12
18
12
18
5
19
12
18
5
19
5
19
12
20
12
20
12
4th Laborer
Wage RW
$18
$5
19
5
Table 6. Session 1: Firms' Employment and Profits
Firm ID
1
2
3
4
5
6
7
8
9
Total
Number of
Employees
1
1
2
1
2
1
1
2
1
12
Firm's Total Firm's Total
Revenue Wage Costs
$20
$11
20
12
30
19
20
10
30
18
20
12
20
9
30
18
20
11
$210
$120
Firm's
Profit
$9
8
11
10
12
8
11
12
9
$90
Table 7. Session 2: Firms' Employment and Profits
Firm ID
1
2
3
4
5
6
7
8
9
Total
Number of
Employees
1
1
1
1
1
1
1
1
1
9
Firm's Total Firm's Total
Revenue Wage Costs
$20
$15
20
15
20
15
20
15
20
15
20
15
20
15
20
15
20
15
$180
$135
Firm's
Profit
$5
5
5
5
5
5
5
5
5
$45
Table 8. Session 3: Firms' Employment and Profits
Firm ID
1
2
3
4
5
6
7
8
9
Total
Number of
Employees
4
4
3
3
2
1
2
3
2
24
Firm's Total Firm's Total
Revenue Wage Costs
$95
$72
95
73
75
57
75
60
55
37
30
18
55
37
75
56
55
40
$610
$450
Firm's
Profit
$23
22
18
15
18
12
18
19
15
$160
Table 9. Labor Supply: Sessions 1, 2, and 3
Wage Range
Wage < $5
$5 < Wage < $12
Wage > $12
Labor Supplied
0
12
24
Table 10. Labor Demand: Sessions 1 and 2
Wage Range
Wage > $20
$10 < Wage < $20
Wage < $10
Labor Demanded
0
9
18
Table 11. Labor Demand: Session 3
Wage Range
Wage > $30
$25 < Wage < $30
$20 < Wage < $25
Wage < $20
Labor Demanded
0
9
18
36
Figure 1. Demand for Labor - Sessions 1 and 2
$50
45
40
Wage Rate
35
30
25
20
15
10
5
0
4
8
12
16 20 24
28
Number of Laborers
32
36
Figure 2. Demand for and Supply of Labor - Sessions 1 and 2
$50
45
40
Wage Rate
35
30
25
20
15
10
5
0
4
8
12
16 20 24
28
Number of Laborers
32
36
Figure 3. Demand for and Supply of Labor - Sessions 1 and 2
with Minimum Wage Indicated
$50
45
40
Wage Rate
35
30
25
20
15
Minimum Wage
10
5
0
4
8
12
16 20 24
28
Number of Laborers
32
36
Figure 4. Demand for and Supply of Labor - Session 3 with
Minimum Wage Indicated
$50
45
40
Wage Rate
35
30
25
20
15
Minimum Wage
10
5
0
4
8
12
16 20 24
28
Number of Laborers
32
36