The analysis of minimum wage

Minimum wage levels in OECD countries as a share of average full-time wage, At a minimum, even if one has somewhat different views about these alternative studies, blanket statements claiming that there is no evidence that raising the minimum wage costs jobs are simply untrue.

importance of minimum wage

This is because while the upward sloping aggregate labor supply would remain unchanged, instead of using the upward labor supply curve shown in a supply and demand diagram, monopsonistic employers would use a steeper upward sloping curve corresponding to marginal expenditures to yield the intersection with the supply curve resulting in a wage rate lower than would be the case under competition.

Some European countries e. These programs pay subsidies to low-income workers, based on family income; the subsidies are phased out as income rises. First, employers substitute away from the now more expensive labor and toward other inputs such as capital.

Minimum wage laws mandate high wages for low-wage workers rather than higher earnings for low-income families. These frictions imply that when an employer hires another worker, the cost of existing workers also increases.

The analysis of minimum wage

More effective policies are those that increase the incentives for members of poor and low-income families to work. With no minimum wage, there is an equilibrium wage, w, and an equilibrium quantity of labor employed, L Figure 1.

The practice was eventually formalized with the passage of the Act Fixing a Minimum Wage in by King James I for workers in the textile industry.

Minimum wage wiki

The result is a surplus of the commodity. Some studies do not find that minimum wages lead to fewer jobs. Nearly two-thirds of the studies reviewed estimated that the minimum wage had negative although not always statistically significant effects on employment. Summary and policy advice While low wages contribute to the dire economic straits of many poor and low-income families, the argument that a higher minimum wage is an effective way to improve their economic circumstances is not supported by the evidence. These analyses suggest that averaging across studies points to an estimate near zero. However, some states do not recognize the minimum wage law, such as Louisiana and Tennessee. In addition, elasticities estimated from most existing minimum wage studies overstate the wage gain, because they are computed in terms of the legislated increase in the minimum wage;however, typically, some affected workers are already earning more than the old minimum wage but less than the new minimum wage , so the size of the average wage increase for them will be smaller than the minimum wage increase itself. However, it is rarely implemented, even by contractors of government agencies.

Some studies do not find that minimum wages lead to fewer jobs. Most studies do not focus solely on affected workers, which means the job loss they estimate could be much higher as a percentage of workers who could potentially benefit from the higher minimum wage.

Since demand for the product is highly inelastic, consumers continue to buy the product at the higher price and so the manager is not forced to lay off workers.

Although a minimum wage policy is intended to ensure a minimal standard of living, unintended consequences undermine its effectiveness.

purpose of minimum wage
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