Job Market Monitor: The so-called neo-classical model assumes full employment. Workers, and minimum wage workers in that model can change job at will because there are plenty of them. Employers compete one another for rare workers…
In the real world of involuntary unemployment, that is not the case of course. And the impact on minimum wage on employment is insignificant…
Where’s the monopsony?: President Obama, Paul Krugman and Robert Reich have all been pushing for an increase in the minimum wage. I want to agree with them, and Krugman is certainly correct that the preponderance of empirical evidence shows that the minimum wage’s impact on total employment is negligible.
But the question is, why? Krugman’s statement that human beings are not Manhattan apartments is true, and allows him to support the minimum wage while being appropriately skeptical of rent control, but it doesn’t give a satisfactory answer as to why putting a floor on the price of labor would not create excess supply of labor.
There is in economic theory a set of circumstances, however, under which an increase in the minimum wage might raise employment. If an employer has a market largely to itself–if it has monopsony power–then it will both pay its workers less than their productivity warrants and not hire enough workers to be at the most efficient level of employment. Raising the minimum wage would then both increase pay and induce more workers into the labor market, hence increasing employment. If government could nail the minimum wage to the marginal revenue product of the least productive workers, the minimum wage could produce a first-best outcome–one where pay and employment levels were efficient.
Chosen excerpts by Job Market Monitor from
MINIMUM-WAGE laws have a long history and enduring political appeal. New Zealand pioneered the first national pay floor in 1894. America’s federal minimum wage dates from 1938. Most countries now have a statutory pay floor—and the ranks are still swelling. Even Germany, one of the few big countries without, may at last introduce a national … Continue reading »
The president’s call for a rise in the minimum wage from $7.25 an hour to $9, with subsequent increases in line with inflation. The question we need to ask is: Would this be good policy? And the answer, perhaps surprisingly, is a clear yes. Why “surprisingly”? Well, Economics 101 tells us to be very cautious … Continue reading »
President Barack Obama proposed last night that the United States raise the minimum wage to $9.00 per hour. While that may seem like a massive raise for low earners — the current minimum wage is $7.25 per hour — we learned that when accounting for the impact of inflation this would be far from the … Continue reading »
A recent national report shows that Louisiana is one of only five states without a state-set minimum wage, but state officials say it doesn’t really matter. The National Conference of State Legislators report shows that Louisiana, Alabama, Mississippi, South Carolina and Tennessee have no set minimums that must be paid to workers in private or … Continue reading »
US / Minimum wages raises will benefit nearly 1 million workers in 10 States reports National Employment Law Project
The minimum wage will increase in ten states on Jan. 1, modestly boosting the incomes of nearly one million low-paid workers in Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Rhode Island, Vermont, and Washington. The state minimum wage rates will rise between 10 and 35 cents per hour, resulting in an extra $190 to $510 … Continue reading »
New York / Minimum-wage hike would kill 22,000 jobs over the next decade finds The National Federation of Independent Business
A proposal to hike the state’s minimum wage would kill 22,000 jobs over the next decade and cut economic output by $2.5 billion, New York’s small- business lobby claimed in a study released yesterday. The National Federation of Independent Business report estimates that seven of every 10 job losses would occur in small businesses, which … Continue reading »
Nannies, caregivers and housecleaners earn a median wage of about $10 an hour, and few receive benefits like health insurance or paid sick days, according to the first-ever national statistical study of domestic workers, which is being released Tuesday. The study, based on interviews with 2,086 workers in 14 major metropolitan areas, found substantial differences … Continue reading »