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The minimum wage: does it hurt workers? - YouTube
Channel: The Economist
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for decades the minimum wage has sparked
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fierce debate
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among economists and politicians
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the covert 19 pandemic and president joe
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biden's push to raise america's minimum
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wage
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have forced the issue back into the
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political spotlight
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economists traditionally believed that
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raising the minimum wage
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led to job losses it's often been feared
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the minimum wage will end up hurting the
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very people you're trying to help
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yet decades of research has led to a
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rethink
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and today 90 of countries have some form
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of minimum wage
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but there is still no agreement on how
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high it can be without harming workers
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why does the minimum wage continue to be
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so divisive
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for more than a hundred years worker
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revolutions and strikes fought for a
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minimum wage
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in 1894 new zealand finally introduced
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the first laws
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around a national base pay since then
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take up of minimum wages in the rest of
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the world has been varied
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though the concept is simple workers are
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paid a legal base rate for their work
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most economists believed the minimum
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wage could destroy jobs
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this idea comes from the most basic of
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economic models
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supply and demand economics 101
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if you make something more expensive
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people will usually want to buy less of
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it
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and if you make labor more expensive
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then employers might want less of it
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and what we call employers wanting less
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labor in the real world
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is unemployment america's first
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federal minimum wage wasn't introduced
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until 1938
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when president franklin roosevelt set it
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at 25 cents per hour
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to help low-income workers during the
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great depression
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but the federal minimum wage in america
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isn't tied to inflation
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and so hasn't kept up with rising prices
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over time it's lost value and stagnated
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today it stands at 7.25 per hour
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meaning that in real terms it peaked at
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around 12
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in 1968
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in response to the low federal minimum
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wage rate
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some state and county politicians raised
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it locally themselves
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by the early 1990s instead of having
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just one us minimum wage
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you've got differing minimum wages in
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different states different counties
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different cities so almost this
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patchwork quilt of differing wage floors
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in 1991 the federal minimum wage in
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america went up to 4.25
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about eight dollars in today's money
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by 1992 24 states had the same minimum
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wage rate as the federal one and
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five states had minimum wage rates
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higher than it
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this patchwork of different minimum wage
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levels gave economists an opportunity
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to measure the real-world impact of the
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minimum wage
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and this led to a study that turned
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economic thinking about the minimum wage
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on its head in 1992
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two economists from princeton david card
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and alan kruger
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looked at how changes to the minimum
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wage affected employment at fast food
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restaurants
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in two states with differing policies
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new jersey where the minimum wage for
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workers
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increased and neighboring pennsylvania
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where it stayed the same
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of course what conventional theory would
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tell you at the time is
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the minimum wage has gone up in new
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jersey it hasn't gone up in pennsylvania
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what you'd expect to see is employment
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in new jersey
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to fall relative to employment in
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pennsylvania
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but what kardon kruger found is actually
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the opposite
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despite the wage going up in new jersey
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employment actually increased
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the surprising result can be explained
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by the idea of monopsony power
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something that employers in the fast
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food industry may possess
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to a degree in a monopoly
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there is one dominant supplier who sells
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to many buyers
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a monopsony is the opposite there's one
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sole buyer of goods
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or employer of workers the classic
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example
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is a one factory town but all employers
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have a degree of monopsony power
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in this case the fast food company in an
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area
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with less competition the employer can
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set the wage for their workers
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this means wages can be kept
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artificially low
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carden kruger found that a small wage
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increase didn't lead to redundancies
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because wages were already below market
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rate
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and why did employment increase the
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higher wage may have attracted new
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workers to the market
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the study proved for the first time that
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raising the minimum wage doesn't
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necessarily destroy
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jobs this groundbreaking finding
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challenged conventional wisdom on
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minimum wages in america
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and saw similar policies spread around
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the world
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china introduced a minimum wage in 1994
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britain in 1998 along with ireland in
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2000
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and germany in 2015
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cards and kruger's finding also led to a
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new focus on empirical
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or real world data as opposed to theory
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yet gathering empirical data isn't easy
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and can give contradictory results
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so far from providing clarity the study
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only served to reignite the debate
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so are you going to track the number of
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jobs or are you going to track
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workers because you know they're not
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necessarily the same thing
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you've got to decide are you going to
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try and look at the entire labor market
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or just certain groups whether that be
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the low skilled or teenagers
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or some other sort of group isolating
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the impact of the minimum wage
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is far from straightforward
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take seattle it's been at the forefront
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of the minimum wage debate in america
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since a historic law in 2014 was passed
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that would set the minimum wage at 15
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an hour by 2021
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two studies of low paid jobs a year
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apart gave very different results
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the first published in 2017 looked at
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aggregate data
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or averages of data on hours and
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earnings
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it found that the increase in minimum
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wage led to employers reducing hours in
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low paid sectors
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meaning employees overall lost out on
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monthly wages
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the second in 2018 looked at individual
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workers
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and found that low-paid workers earned
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more on a weekly basis
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after the minimum wage had been
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increased but some of this gain was
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because workers were picking up shifts
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in other jobs so in their first
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paper they're looking at aggregated
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number of hours aggregated number of
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jobs
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aggregated numbers about pay but a year
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later in their second paper
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they've got access to these individual
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tax records so they can actually track
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what's happening to individuals and
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follow them
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both studies are accurate but seemingly
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contradictory
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this goes to the heart of the minimum
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wage debate
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fundamentally what these two studies
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show is that the minimum wage is really
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an empirical question
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rather than a theoretical one it depends
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on what sectors people are working in
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how easily replaced by machines they are
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what sort of profit margins their
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employers have
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what their pricing power is and what
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policy makers and economists need to
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keep in mind
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is that they need to keep checking the
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data keep looking at different types of
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data
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and keep examining the evidence of the
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impact these policies are having
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and in america the opportunity for
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another experiment could be just around
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the corner
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this time on a national scale
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i'm joe biden it's time we had a 15
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an hour minimum wage so families can
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earn a living
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and get ahead as president i'll make
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sure we get it done
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raising the federal minimum wage to 15
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an hour
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isn't just about economics this is about
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politics this is a partisan dividing
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line
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and you know he may struggle to push
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this through the senate
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it would take america's economy into
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uncharted waters
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and some economists still fear it is too
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high for firms to handle
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and could lead to job losses if joe
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biden does manage to raise the federal
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minimum wage to 15
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an hour that'll obviously be a big
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historical moment
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but i'm afraid economists and
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politicians
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will likely be arguing about the impact
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for years to come
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the world has little experience of an
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increase this large
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perhaps analyzing the impact could help
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economists finally reach a consensus
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on the minimum wage
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i'm duncan wilder britton economics
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correspondent at the economist
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we've written a series of articles on
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the basics in economics
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and how the latest research and thinking
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is changing them
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you can find those articles at the link
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below thanks for watching
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and don't forget to subscribe
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