The minimum wage: does it hurt workers? | The Economist

For decades, the

minimum

wage

has sparked fierce debate among

economist

s and politicians. The covert '19 pandemic and President Joe Biden's push to increase the

minimum

wage

in the United States have forced the issue back into the political spotlight. Economists traditionally believed that raising the minimum wage led to job losses. There have been fears that the minimum wage will end up harming the very people you are trying to help, but decades of research has led to a rethink and today 90 countries have some form of minimum wage, but there is still no agreement on how high. could be.

Without harming

workers

, why

does

the minimum wage remain so divisive for over a hundred years?

workers

revolutions and strikes fought for a minimum wage in 1894 new zealand finally introduced the first laws on a national base wage since then minimum wages were adopted in the rest of the world it has been varied although the concept is simple workers are paid a legal base rate for your work most

economist

s believed that the minimum wage could destroy jobs this idea comes from the most basic of economic models supply and demand economics 101 if you make something more expensive people will generally want to buy less and if labor becomes more expensive then employers might want less and what we call employers who want less labor in the real world is unemployment.

The first federal minimum wage in the United States was not introduced until 1938, when President Franklin Roosevelt set it at 25 cents an hour to help low-income workers during the Great Depression, but the federal minimum wage in the United States is not tied to inflation and therefore has not kept pace with rising prices over time, it has lost value. and today it is stuck at 7.25 per hour, meaning that in real terms it peaked around 12 in 1968 in response to the low federal minimum wage that some state and county politicians raised locally earlier in the decade of 1990 instead of just having a US minimum wage. salary, there are different minimum wages in different states, different counties, different cities, so almost this quilt of different minimum wages in 1991, the federal minimum wage in the United States went up to 4.25, about eight dollars in today's money, In 1992, 24 states had the same minimum. minimum wage like the federal one and five states had higher minimum wages than this mosaic of different minimum wage levels gave economists the opportunity to measure the impact of the minimum wage in the real world and this led to a study that turned economic thinking On the reversed minimum wage in 1992, two Princeton economists, David Card and Alan Kruger, analyzed how changes in the minimum wage affected employment at fast food restaurants in two states with different policies: New Jersey, where the wage increased minimum for workers, and neighboring Pennsylvania, where it increased. remained the same of course, what conventional theory would say at the time is that the minimum wage has increased in New Jersey, it has not increased in Pennsylvania, what you would expect to see is employment in New Jersey fall relative to employment in pennsylvania, but what kardon kruger found is actually the opposite, even though rising wages in new jersey employment actually increased the surprising result can be explained by the idea of ​​monopsony power, something that employers in The fast food industry may possess to some extent a monopoly there. is a dominant supplier that sells to many buyers a monopsony is the opposite there is a single buyer of goods or employer of workers the classic example is an industrial city but all employers have some degree of monopsony power in this case the fast food company In an area with less competition the employer can set the salary of his workers, this means that wages can be kept artificially low Carden Kruger discovered that a small wage increase did not lead to layoffs because wages were already below market and why the Employment increased the higher wage may have brought new workers into the market The study showed for the first time that raising the minimum wage

does

not necessarily destroy jobs This groundbreaking finding challenged conventional wisdom about minimum wages in the United States and saw similar policies spread across the country China introduced a minimum wage in 1994, Britain in 1998, along with Ireland in 2000 and Germany in 2015, the cards and Kruger's finding also led to a new focus on empirical or real-world data rather than theory. , but collecting empirical data is not easy and can give contradictory results so far.

By providing clarity, the study only served to reignite the debate. Are you going to track the number of jobs or are you going to track workers because you know they're not necessarily the same thing? You have to decide if you are going to try it. Looking at the entire labor market or just at certain groups, whether low-skilled or adolescents or some other type of group, isolating the impact of the minimum wage is not easy. Take Seattle, has been at the forefront of the minimum wage debate in the United States since a landmark law was passed in 2014 that would set the minimum wage at 15 per hour by 2021.

Two studies of low-wage jobs a year apart yielded results very different. The first, published in 2017, analyzed aggregate data or averages of data on hours and earnings. found that the increase in the minimum wage led employers to reduce hours in low-paid sectors, meaning employees overall lost monthly wages. The second in 2018 examined individual workers and found that low-wage workers earned more weekly after the minimum wage had ended. has increased, but part of this gain was because workers were taking shifts at other jobs, so in their first document they are looking at the aggregate number of hours, the aggregate number of jobs, the aggregate numbers on salary, but a year later, in their second document, they got access to these individual tax records so they can track what happens to people and follow them.

Both studies are precise but apparently contradictory. This goes to the heart of the minimum wage debate. Fundamentally, what these two studies show is that the minimum wage is really an empirical question rather than a theoretical one, it depends on what sectors people work in, how easily they are replaced by machines, what kind of profit margins their employers have. , what their pricing power is and what policymakers and economists need to keep in mind is that I need to keep checking the data, keep analyzing different types of data and keep examining the evidence of the impact that these policies are having and in In the United States, the opportunity for another experiment could be around the corner, this time on a national scale.

I'm Joe Biden. It is time for us to have a minimum wage of 15 an hour so that families can earn a living and get ahead as president. I'll make sure we do it. Raising the federal minimum wage to 15 an hour is not just a question of economics, this is a question of policy. It's a partisan dividing line and you know you may have a hard time pushing this through the Senate, it would take the US economy into uncharted waters and some economists still fear it's too high for businesses to handle and could lead to job losses.

If Joe Biden manages to raise the federal minimum wage to 15 an hour, it will obviously be a great historical moment, but I fear that economists and politicians will probably be arguing about the impact for years to come. The world has little experience of such a large increase. perhaps analyzing the impact could help economists finally reach a consensus on the minimum wage. I'm Duncan Wilder Britton, economics correspondent for The Economist. We have written a series of articles on the basics of economics and how the latest research and thinking is changing them. You can find them. articles in the following link thanks for watching and don't forget to subscribe