Micro Principles Policy AE: minimum wage and taxes

Alan Green, Cornell University-Endowed Colleges,
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Initial Publication Date: August 19, 2018

Summary

This exercise includes two policy oriented application exercises targeted to principles courses: one on the minimum wage and one on taxes, along with a readiness assurance test that applies to both. The exercises can be split or used together.

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Context for Use

This activity is for principles courses and will take 50-75 minutes. The activity starts with a readiness-assessment quiz, which is followed by two policy application exercises.

Overview

This activity is a team-based policy debate. The learning goal is for students to apply economic models and analysis to support their arguments on relevant policy issues. The two exercises here are designed for use with the supply/demand framework including price controls and elasticity. The application exercises have policy questions with five specific options. The topics are chosen and options are designed so that there is not an intended correct answer. Rather, students should be able to make an argument for any of the choices. Their task as a team is to discuss the issue and come to some consensus for the team choice. They are instructed to vote if they cannot come to consensus. The team discussion takes the first 15-20 minutes of the activity.

Once all teams have come to a policy decision the instructor facilitates a class discussion, which begins by having teams simultaneously reveal their choices (using large cards with letters). The instructor then designates one team member to present each team's choice. Good presentations directly use the model; for the minimum wage question students should both discuss the consequences of a binding price floor while also acknowledging the complexity of labor markets. For the tax question, students should refer to elasticities of the various goods and the resulting tax incidences. As the teams present, the instructor can ask questions to probe the depth of their analysis.

After each team defends their choice, the class discussion commences on what the best policy should be. The instructor facilitates this discussion for 10-15 minutes, after which it culminates in class vote. Students vote individually for the class vote, but extra credit can be offered for any team whose choice wins a majority of the class vote (thus incentivizing effective argument and persuasion).

Expected Student Learning Outcomes

In this activity students will use the supply and demand model to support policy arguments. Specifically, they will correctly apply concepts of price controls, elasticities and tax incidence to relevant policy decisions.

Information Given to Students

Student teams (5 students per team works well) are asked to consider both questions and form a team policy position that can be supported with economic models discussed in class.

Quiz - supply and demand - price controls and taxes (Microsoft Word 2007 (.docx) 15kB May14 18)
Student handout - AE on minimum wage and taxes (Microsoft Word 2007 (.docx) 13kB May14 18)

Teaching Notes and Tips

In this activity students are given two policy questions in teams. Their task as a team is to try to form a consensus around one of the five options for each policy. The policy questions are designed so that there is no "right" answer; the goal is for students to see how economics can inform policy debates. The goal is for students to engage in debates informed by economic models; the instructor should circulate, listen to arguments and ask probing questions to get students to think in terms of the models. This is often best done by playing "devil's advocate." If a team decides quickly to abolish the minimum wage, for instance, the instructor should challenge them on broader impacts of low wages - what happens if workers cannot afford basic needs? Do they then receive government aid? Which is better, to have a minimum wage that puts workers above the poverty line, or to have none and provide government aid? The goal is not to push any particular policy, but to encourage students to think critically and use the economic models. For the tax question, students should be using the concepts of elasticity and tax incidence from class. In the exercise, however, they can also start to identify and discuss other impacts of tax policy - to deter negative behavior or to redistribute income for example. This can lead to broader discussion of how models can inform policy, but policy itself has subjective/normative goals as well.

When asking the teams to present, random selection is good; it is better if students do not know who is presenting until it is time to present so everyone has to prepare and be engaged in the discussion. The instructor then leads a short class discussion on the topic, filling in or correcting flawed reasoning when necessary and also noting if there is a convergence to one or two options. It is good then to consider why other options were eliminated. How many groups chose one of the extreme options for the minimum wage? How many simply opted for the status quo? Were any tax policies consistently eliminated? Why?

The discussion culminates in a class-wide individual vote on each policy. This allows students who dissented from their group choice to express their preferences. The point of the class-wide individual vote is to see if a particular argument "won the day" by securing a majority of votes. In other words, it is a brief exercise in democracy. If one policy has a majority, the instructor can note that occurrence and discuss whether the policy might be successful in practice. If there is no consensus policy, the instructor can note and/or discuss the challenge of succeeding in democratically passing sound policies. If desired, additional incentives can be offered to any team whose policy choice secures a majority of class votes; a few extra credit points can motivate teams to build consensus and argue strongly for their preferred policy.


Assessment

Students are assessed through exam questions that ask them to carry out applications of economic models to particular issues or situations. Research is ongoing as to the effectiveness of a series of these activities on exam performance.

References and Resources