Abstract:
In the spring of 1984, despite the economy's spectacular recovery from a severe recession, teenage unemployment remained a major problem: 19.4 percent of all teenagers and 44.8 percent of black youth, were jobless. At the urging of the Reagan administration, Congress once again began to consider a proposal to lower the minimum wage for teenagers, citing economists' arguments that the minimum wage hurt those whose skills were the most marginal. Previous proposals for a "youth subminimum wage" had failed in the face of opposition from labor and civil rights groups, but in 1984, the African-American community had begun to splinter over the subminimum wage, and as the issue gained visibility, the National Urban League felt pressed to take a stand.
Learning Objective:
The case traces the history of the political and academic debate over the minimum wage and the proposed subminimum wage. It provides a vehicle for examining two alternative models of labor markets--one competitive, the other monopsonistic--and for analyzing their relative ability to explain empirical data concerning the effects of the minimum wage. The case also serves to highlight the role of labor unions.
