Income and substitution effects

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Income and Substitution Effects

Since 2018, wages in low-wage industries in the US such as food service and retail have experienced (on average) strong per annum pay increases. This is partly due to recent minimum wage increases, according to this article:

https://www.washingtonpost.com/business/2020/01/02/minimum-wage-increases-fueling-faster-wage-growth-those-bottom/

Based on this article and economic theory, analyse the effects of these wage changes. Consider that the minimum hourly wage in the US increased from $7.25 in 2017 to $12.50 in 2020. Discuss in detail the income and substitution effects of this wage increase from 2017 to 2020 for low-wage workers and support your answer with a diagram and sound reasoning.

Reference no: EM132500581

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