The Minimum-Wage ControversyThis is a featured page

Case Against Minimum Wage
  • above equilibrium minimum wage will push employers back up labor D curves, causing them to hire fewer workers
  • higher labor costs might force some firms to shut down
    • resulting in unemployment for poor, low wage workers that minimum wage was supposed to help
  • "poorly targeted" to reduce household poverty
    • Much of the benefit of the minimum wage accrues to workers, including teenagers, who do not live in poverty households

Case for Minimum Wage
  • in a more real, low-pay labor market where there is some monopsy power, minimum wage can increase wage rates w/o resulting in unemployment
  • may increase labor productivity
    • shifts labor demand curve to the right and offset any reduced employment that minimum wage might cause
  • may reduce labor turnover (i.e. rate at which workers voluntary quit)
  • fewer low-productive workers, average productivity of firm's workers would increase
  • a higher minimum wage may eliminate the motive that monopsonistic firms have for restricting employment

Evidence and Conclusions
  • The overall effect of the minimum wage is uncertain:
    • Employment and unemployment effects of the mnimum wage do not appear to be as great as critics believe
    • Yet, the minimum wage is not as strong an antipoverty tool as many supporters believe
      • a large part of its effect is dissipated on nonpoverty families
  • A political tool?
    • More workers are helped by the mnimum wage than hurt
    • Assures society that employers are not exploiting "vulnerable, low skilled workers."


Christinah
Christinah
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