## Sunday, January 10, 2016

### Minimum wages; a story problem

Many people loath story problems.  Let's see how you guys do.

A large city passed an increase in the minimum wage.  It doubled the minimum wage from \$7.25/hour to \$14.50/hour.

The owner of a successful restaurant near the city limits struggles to compete with restaurants just across the boundary in neighboring communities after the increase in the minimum wage.  Over the course of the year he sees the value of his business plummet from \$300,000 to bankruptcy, in spite of working three thousand hours (12 hours a day, 7 days a week) and laying off half of his staff.

Question One:  What was the maximum wage in that restaurant in that first year?
Question Two:  Ignoring the survivor bias, what was the median wage in that first year?
Question Three:  What was the minimum wage in that restaurant in that first year?
Question Four:  What was the minimum wage in that restaurant after the first year?

Answer One:  The maximum wage was \$14.50/hour
Answer Two:  The median wage was \$0.00/hour.
Answer Three: The minimum wage was -\$100/hour.  The owner lost \$300,000 while working 3000 hours.
Answer Four: The effective minimum wage in the restaurant after it closed was \$0.00/hour.

People who adore raising the minimum wage probably did not like story problems in school.