28
Opinion of Economists
What makes you think that economists are so aligned against the minimum wage? Take a look at the IGM Forum that polls top academic economists. There is substantial disagreement about the effects and welfare implications of a minimum wage hike.
IGM Forum: Minimum Wage
NYTimes Blog Post about it
Theory about the minimum wage
Also, it'...
18
From a purely theoretical perspective, one argument for a minimum wage would be that the majority of employees work for medium-large sized businesses and face significant personal cost from switching employer. The upshot, argue some, is that firms have disproportionate bargaining power when negotiating terms of employment. To get an idea of how this would ...
15
The title "What is the purpose of increasing the minimum wage?" and the question "is there an economic reason as to why a higher minimum wage would benefit the economy?" while overlapping, are not necessarily identical.
To answer the latter, minimum wage earners have the highest velocity money in the economy. By this, I mean that when I was working, the ...
9
This phenomenon is sometimes called "wage compression" because the range of wages is compressed by the minimum wage laws.
One paper on this subject is The Impact of the Minimum Wage on Other Wages
8
A very famous study in this direction is Card and Krueger (1994).
They look an increase in the minimum wage in New Jersey in 1992. While New Jersey raised the minimum wage from USD 4.25/h to USD 5.05/h, the minimum wages remained at $4.25 in adjacent Pennsylvania.
You should have a look at the subsequent research.
7
There are two mechanisms at work.
First, a minimum wage will (to the extent that it affects workers) increase disposable income for a subpopulation who have a high marginal propensity to consume (increase demand). This is a somewhat old Keynesian argument: Then facing higher demand, firms will employ more, s.t. in general equilibrium the effect of a wage ...
7
Recently there has been a lot of interest on the use of minimum wage in the literature on optimal taxation. These recent developments tend to indicate that if a government aims at redistribution, minimum wage can often be a useful tool under imperfect information.
The core intuition is that, under some assumptions, a minimum wage can be used as a tagging ...
7
From the Chicago Federal Reserve:
Following a minimum wage hike, household income rises on average by about \$250 per quarter and spending by roughly \$700 per quarter for households with minimum wage workers. Most of the spending response is caused by a small number of households who purchase vehicles
http://www.chicagofed.org/digital_assets/...
7
How is the minimum wage determined?
Yes and no. It is a political choice, but with economic reasoning. In the end, that's the case for every economic rule, maybe with the exception of monetary rules, as we try to preserve independence for central bankers (but it isn't completely true for the US FEDs).
When setting the new minimum wage, you compare minimum ...
6
We could distinguish between two kinds of "wage subsidies":
A) The government pays to the firm part of the wage cost, usually social security fees.
B) The government pays to the employee a markup on his wage.
In scenario A, labor supply is not affected but labor demand shifts outwards: the tendency should be higher employment and higher equilibrium wage ...
5
We can infer from what happens in countries where layoffs are difficult, e.g. France. There employees are (or at least were) harrassed to quit instead.
There's a practice in France called being sent to the closet — "le placard."
It's when your employer makes your work life so miserable that you are forced to quit. [...]
Being sent to the closet is ...
4
Another argument is that, in the long run, it promotes productivity, technology and I+D.
Without a minimum wage your economy will tend to turn into a new Bangladesh. It will attract low tech industries that will have very little incentive to invest time and money into making workers more productive.
If each worker month cost you 1000$ you will think how ...
4
One point to mention is when you increase the purchasing power of the poorest they will use it on spending and thus boost the local economy (shops, repairs, plumbers etc). Wealthy people have more options and may invest it abroad or just save it.
The social democratic model of the nordic countries with high governmental investment in social security and ...
3
You should look at this county pairing methodology used by Dube, Lester and Reich (2010). http://escholarship.org/uc/item/86w5m90m
The abstract:
We use policy discontinuities at state borders to identify the effects of minimum wages on earnings
and employment in restaurants and other low-wage sectors. Our approach generalizes the case
study method by ...
3
It depends. Some countries use hourly wage (Australia, Morocco, UK, US), other use daily (Mexico), other monthly (Argentina, Brazil, Chile, Colombia, France, Peru, Spain), others annually (Bolivia). (this is not an exhaustive list)
Countries without a minimum wage established by law are: Denmark, Iceland, Italy, Norway, Sweden, Switzerland. They do however ...
3
There actually is empirical evidence that raising the minimum wage raises a range of wages that are close to, but above the minimum wage. The effect begins to fade as you go up the wage scale, so that could be viewed as "wage compression" or it could be viewed as reducing income inequality. http://laborcenter.berkeley.edu/local-minimum-wage-laws-impacts-on-...
3
A welfare or efficiency enhancing minimum wage can be justified in several theoretical settings. For example, if there is monopsony (a single employer), the employer can internalize the effect of his labor demand on the labor market price (the wage) and therefore holds down both labor demand and wages. A minimum wage can therefore increase both employment ...
3
While business owners are generally united in their stance against minimum wage increases, wage earners do not always prefer a wage increase. Minimum wage puts pressure on the least productive workers and puts them at a threat of being fired. For example, if a worker produces 10 dollars of revenue for the business owner, but costs him 7.50 dollars an hour, ...
3
Neumark and Wascher have a paper that surveys recent empirical work on the effects of the minimum wage in detail. It includes a number of tables that nicely summarise the results of a large number (102!) of studies.
They conclude the paper with the following remarks:
Nonetheless, the oft-stated assertion that the new minimum wage
research fails to ...
3
I will focus on academic literature reviews since they tend to be unbiased (or at least less biased) - academic literature reviews are often accessible even to non-specialists as they usually do not go deep into models as they try to provide broad overview of the topic:
Good (and highly cited) literature review on this topic are:
Neumark, D., & Wascher, ...
3
The output from the model you mention would be not accurate at all for several reasons, including amongst other reasosns:
Your post you mention you want to use labor costs as predictable variable - there is no such thing as predictable variable in econometrics. If you by that mean predicted variable (i.e. dependent variable) it would be wrong to have labor ...
2
Dube et. al. have a recent paper that documents this fact in payroll data from a US retailer. Another paper looking at this but with a less clear answer is Autor et. al. 2016.
2
After the exchange in comments, the OP appears to ask "why government intervention if the market will take care of the situation?"
Well we know that government intervention is advised when markets "fail" or, more accurately, are not characterized, at least to a respectable degree, by the ideal conditions required by theory in order for them to function ...
1
The minimum wage is usually the outcome of a bargaining process between the government, businesses (via lobby), and the trade unions. As such, a key driver of the final outcome depends on the balance of power. In countries like France and Germany, with strong unions in the former, and wide collective bargaining on the latter, the minimum wage is relatively ...
1
While you're on the right track, minimum wage is not the best way to get at it. What you're discussing is called "real wages", and it is usually calculated based on some average wage, as many workers make more than minimum wage. So yes, the price of eggs has gone down (if minimum wage is a useful metric for average income).
1
Taxation is deflationary. It's fiscal tightening. It reduces aggregate demand.
(You didn't mention government spending in the question, so I've assumed it's flat).
Inflation is an increasing amount of money chasing the same amount of goods (or variants of same).
Taxation reduces the amount of money in the economy. So there's less money chasing the same ...
1
This is almost a link only answer, but you are asking for peer reviewed sources in the comments.
Brian Romanchuk's statement that taxes are anti-inflationary also appears. (Attributed to 'conventional macro'.)
CAN INCOME TAX INCREASES BE INFLATIONARY? AN EXPOSITORY NOTE
Abstract
Conventional macroeconomics classifies an increase in the rate of
...
1
No, there is no such product.
"Value" is a historical construct; it only exists where products are made to be sold as commodities. When there was no production of commodities, products had no value. If we reshape our societies so that we no longer produce things as commodities, there will no longer be value.
Even as long as products are commodities, their ...
1
Neumark and Wascher did a lot of work on the minimum wage in the 90s and 00s, including their 1992 piece "Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws". A non-paywalled version of the article can be found here. It includes use of panel data (cross sectional data that you are interested in can be considered a ...
1
As VCG stated, no government would impose a minimum wage below what is the countervailing equilibrium wage. To do so would be pointless.
Do remember that undergraduate discussions on minimum wages using the comparative statics (lines on graphs basically) model are erroneous because labour markets do not clear.
Only top voted, non community-wiki answers of a minimum length are eligible
