AP English Language — Mixed Skills II — Drill 5

The following text is adapted from a modern essay on minimum-wage policy and its economic effects. The minimum wage is one of the most studied policies in the history of economics, and the study has produced one of the most persistent of economic myths: that raising it necessarily destroys jobs. This claim is not simply wrong — it is selectively wrong, meaning it is true under some conditions and false under others, and the conditions under which it is false have received considerably less attention than the conditions under which it is true. The standard economic model predicts that if you raise the price of labor above the market-clearing rate, employers will demand less of it. This prediction follows logically from the model's assumptions: competitive labor markets, free mobility of workers, and employers who respond to price signals by adjusting quantity. The prediction is elegant. It is also derived from conditions that rarely describe the markets where minimum wage workers actually work. In many low-wage labor markets — fast food, retail, home care — a small number of large employers dominate hiring in a given region. Economists call this condition monopsony: a market in which buyers (employers) have enough market power to set wages below the competitive rate. In a monopsonistic market, raising the minimum wage does not destroy jobs; it corrects a market failure. The employer was already paying below what competition would have produced. The wage floor brings the price closer to what a functional market would have set. The evidence from natural experiments — cases where neighboring states or counties with otherwise similar economies have had different minimum wages — has generally supported this more nuanced picture. Economists David Card and Alan Krueger's landmark 1994 study of fast food employment in New Jersey and Pennsylvania found no significant job loss following New Jersey's minimum wage increase. Subsequent research across multiple industries and geographies has largely confirmed that modest minimum wage increases, in the range typical of actual legislation, produce small or undetectable employment effects. None of this means that minimum wage increases are without limits or risks. A very large and sudden increase in a genuinely competitive market could produce exactly what the standard model predicts. The argument is not that the standard model is always wrong but that it is routinely applied beyond the conditions under which it holds. Policy debates deserve the same precision we would demand from any other empirical claim: a clear statement of the conditions, the evidence, and the limits of what we know.