Positive and Normative Analyses - PPT Today

Does Raising The Minimum Wage Help the
Working Poor ?
You’re The Economist Series
What is Positive and Normative ?
 When Economists try to explain to the world, they are
Scientists.
 When Economists are trying to help improve it, they are
policy advisers.
 Scientists and Policy Advisers have different goals. They
use language in different ways.
Positive and Normative Analyses
 We discuss this with an example. Suppose two people are
discussing minimum wage laws. Two statements that
you might hear.
• Polly: Minimum wage laws cause unemployment.

• Norma: The Government should raise the minimum
wage.
 Polly and Norma differ in what they are trying to do.
 Polly speaks like a Scientist. Makes a claim how the
world IS.
 Norma speaks like a Policy Adviser. She is making a
claim how she would like to CHANGE the world.
Positive Analyses
 Polly’s statement is a Positive statement.
 Positive Statements are descriptive.
 Positive Statements make a claim about how the world
is.
 Positive statement make a analysis of facts.
Positive Analyses
 Positive Statement can be confirmed or refuted by
examining evidence – like analyzing data on changes
in minimum wages and changes in unemployment
over a period of time. Thus, positive statements can
be either True or False.
 Positive Economics is descriptive economics, because

in doing positive economics the aim is to describe
as accurately as possible, what is.
Positive Analyses
 Positive statement may be either simple or complex, but
they are always about matter of fact. The word
positive means what is, it does not mean something
good or desirable.
 Positive statements are testable, i.e. it is possible to
prove such statements false by evidence gained by
direct experience and observation.
 Positive statements deal with cause effect relation that
can be tested. for eg the statement’’ A high interest
rate causes new housing loans to drop”
Normative Analyses
 Norma’s statement is normative.(The government
should raise the minimum wage)
 Normative statements are perspective.
 They make a claim about how the world ought to be.
 Normative economics is based on value judgments
Normative Analyses
 Normative statement focuses on our beliefs, on what should
be and ought to be. In such statements we express our
judgments about what is good and what is bad, what is
desirable and what is undesirable, what is right what is
wrong.
 Normative statements are not testable. i.e. it is impossible to prove
such statements false by referring to factual evidence, gained
through direct experience and evidence e.g. The statement. “Interest
rate is too high” is a normative statement, as it has a value judgment.
 2 persons can look at the same normative statement and come at a
different normative conclusion about it. We agree or disagree based
on our opinions.
 Normative statements express a subjective opinion and involve our
value judgments about how things should be. “The unemployment
rate should be less then 1%”or “The economy should grow more
than 5.5% per year”, are examples of normative statements.
Are Positive and Normative
Statements related?
 Actually positive and Normative statements compliment each other.
We cannot do a good normative analysis unless we have done a good
positive economic analysis.
 Our values help us in establishing our goals. Positive analysis will help
us to determine whether the actions we propose actually help us
achieve the desired goals.
 For e.g.. If we believe that teenagers should have a higher income. We
further believe that , this goal can be achieved by increasing the
minimum wage. We may support the demand for minimum wage. But
will this work?
 This is where positive analysis will come in to play. By doing a positive
analysis of minimum wage we can answer the question will a increase
in minimum wage result in increase in teenage income?
 Thus we can conclude that in order to manage the economic problem
better we must clearly identify and define our values, besides doing the
positive analysis. We should be clear where or positive analysis ends,
and our judgment begins.
Case Study
Introduction to the topic – Does raising the minimum
wage help the working poor ?
In 1938 Congress enacted legislation on “minimum-wage”.

The legislation was intended to help the minimum wage
worker earn a reasonable income for his livelihood. But the
position today is s minimum wage worker in spite of
working full time earns a deplorably low income and
therefore the approach is whether the rise in minimum wage
would help the working poor. However there are two
varying thoughts on whether the raising of minimum wage
would help the working poor ?
Positive Statements
Q1 (a) Two positive and Two Normative Statements from the
Readings.
Two Positive Statements

Positive : A higher minimum wage for the employed is
enacted at the expense of jobs for unskilled workers.
Studies show that the minimum wage is a blunt weapon to
redistribute wealth.
Normative Statements
Two Normative Statements
 Normative : Raising minimum wage might help the

working poor earn a living wage.
 Normative : To help only the working poor, some

economists argue that the government should target
only those who need it.
Other minimum wage arguments
Higher minimum wages reduce teenage education
levels and decrease workers long term earnings. It
induces students to drop out of school thus
reducing their long term employability –
Positive Statement.
More people are attracted to work as wage
earners. Enterprise will be low – Positive
Statement.
Normative Statements
 Government should take initiatives towards increasing
investment so as to create more employment
opportunities. – Normative Statement.
 Government should devise policies aimed at helping the

working poor – Normative Statement.
 Government should lower taxation rates to increase

disposable incomes in the hands of the people –
Normative Statement
Q2 (a) Give positive & normative argument why a
business leader would oppose raising the minimum
wage.
 Positive Statement: There are some people whose

labor is simply not worth the minimum wage.
 Normative Statement: Increased labor cost from a
high minimum wage hike jeopardizes hundreds of
thousands of unskilled jobs.
Q2(b) Give a positive and normative argument why a
labor leader would favor raising the minimum wage.
 Positive Statement: If minimum wages are not
assured, it would hurt those with the least resources and
education the most because employers would pay far less
resulting in exploitation of labor.
 Normative Statement: Opponents have exaggerated
the dangers to the economy from a higher minimum
wage.
Q3. Explain your position on this issue. Identify positive and
normative reasons for your decision. Are there alternative ways
to aid the working poor?
 Laws setting a minimum wage that employers can pay workers are a
perennial source of debate. Advocates view the minimum wage is a
way of helping the poor without any cost to the government (NS).
Critics view it as hurting those it is intended to help. For workers with
low level of skill and experience a high minimum wage forces the
wage above the level that balances supply and demand (PS). It
therefore raises the cost of labor to firms and reduces the quantity of
labor that those firms demand. The result is higher unemployment
among those workers affected by minimum wage. Although those
workers who remain unemployed benefit from a higher wage, those
who might have been employed at lower wage are worse off.
 The key to raising standards of living then, especially for
those at the bottom of the economic ladder, is (1) to
prohibit governments from "helping the poor" by
confiscating massive amounts of income and capital
from the rich and middle class and (2) to prohibit
government from "helping the poor" with economic
regulations like the minimum wage.
If poverty could be eradicated with minimum-wage
laws, everyone in the world would be rich. All that
legislators would have to do is raise the minimum
wage to match what they make. Come to think of it,
why haven't they?
Group II
Biju Naik E2009005
Shyam Shet E2009045
Parag Sharma E2009029
Vinayak Bhomkar E2009055
Simon Pinto E2009046

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Does Raising The Minimum Wage Help the

• Polly: Minimum wage laws cause unemployment.

 Positive Economics is descriptive economics, because

In 1938 Congress enacted legislation on “minimum-wage”.

Two Positive Statements

 Normative : Raising minimum wage might help the

 Normative : To help only the working poor, some

 Government should devise policies aimed at helping the

 Government should lower taxation rates to increase

 Positive Statement: There are some people whose

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