Debating the Minimum Wage_Economist_02-01-2001

Debating the Minimum Wage_Economist_02-01-2001 - Economics...

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Economics focus Debating the minimum wage Feb 1st 2001 From The Economist print edition When governments put a regulatory floor under wages, does that destroy jobs? An update on a long-running dispute THE story so far. For many years economists took it for granted that a compulsory minimum wage, set much above the floor that emerges in an unregulated labour market, would reduce employment. Young or unskilled workers would be unable to find work at the mandatory minimum: the bottom of the demand curve would be chopped off. Of course, if the minimum were so low as to impinge on none of the wage bargains actually being struck, there would be no effect. The higher the minimum wage, once it starts to bind, the bigger the loss of jobs. The possibility that a minimum wage would not reduce employment, and might even increase it, was acknowledged. This could happen through market failure of some kind. Suppose, for instance, employers have monopsony power as buyers of labour: they will curb their demand, to drive wages lower. A minimum wage could remedy this, raising wages and expanding employment at the same time. But in a normal, competitive labour market, this should not arise. Then along came David Card and Alan Krueger, two of America’s most distinguished labour economists. They looked at the effect of a big increase in New Jersey’s minimum wage, in 1992, on employment in the local fast-food industry—and they
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Debating the Minimum Wage_Economist_02-01-2001 - Economics...

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