Friday, December 31, 2010

Minimum Wage Thoughts

An interesting point from Worthwhile Canadian Initiative:

That's not to suggest that the minimum wage is necessarily bad for the low-skilled. I suspect most low-skilled workers would rather live in a world with a $10.25/hr minimum wage where it's harder to find worker than a $6.85/hr one where it is easier. But given the possible alternatives (technology, outsource, do without) a higher minimum wage does reduce low-skill employment.

I think that this is a very perceptive point. I have often heard that the minimum wage hurts the working poor because it removes their ability to lower their wage rate to get jobs (by biding under the cost of current employees). But it is an open question whether the cost in employment rates is an aggregate harm to low skilled workers. It might very well be the case that the loss in jobs is more than offset by the higher wages; especially given the low bargaining power of those with few job skills.

I think it is worth reflecting on whether the net impact of minimum wage laws might be positive despite the decrease in net employment among these workers.

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