Unemployment and Minimum Wages

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I read your critique with interest, however, I would like to ask you one question. Regardless of all the statistical data, if we think about real wages being set by market forces, just as the price of any other good or service, how can you maintain that the government's actions to artificially raise the real wages does not result in unemployment? It seems to me that this must always be the case, otherwise the basic law of supply and demand is no longer. If you raise the price of any good above the market price, ceteris paribus, the demand always is less than before.

Do you agree?

Christopher Mayer

-- Chris W. Mayer (CWMAYER@provbank.com), August 11, 1999


Oh, yes. I think that minimum wage laws almost surely do raise the rate of unemployment.

But everything I've seen tends to make me think that (in the U.S. today, and in the U.S. in the past, at least) the minimum wage--along with other federal regulations affecting wages--is a relatively minor factor causing unemployment.

Certainly there is no reason to blame the minimum wage for high unemployment in the Great Depression, or for the ten percent unemployment rate seen in 1982...

Brad DeLong


-- Brad DeLong (delong@econ.berkeley.edu), August 11, 1999.

Do not think of high minimum wage causing unemployment across the board. It only causes employers to fire employees whose mimimum wage exceeds the value of their labor : namely, teenage labor. TEENAGE unemployment is extremely high in countries with high minimum wage.

-- Matthew Rybicki (rightwingtipW@aol.com), February 19, 2003.

what is unemployment?

-- Jenny Gabril Sally Gurturd (lalalala@msn.com), March 03, 2003.

The answer is that you can have a minimum wage law which discourages anybody whose labor is worth less than the minimum wage from seeking work. Since unemployment is only measured by counting the people who are looking for work and not finding it, the minimum wage law doesn't "cause" any unemployment.

Another effect is that when the minimum wage rises, an employer will treat it like any other increase in cost. The first thing they'll do is try to find other places to economize. Their need for labor can't be overcome immediately. Sometimes a machine will need to be invented to displace somebody's labor.

Another effect is simply that an increase in the minimum wage doesn't raise very many people's wages. Consequently the increase in unemployment will be small and lost in the noise.

That's why Brad can reasonably say that the minimum wage law doesn't create much new unemployment. On the other hand, if you listen to some leftists, they say that the minimum wage should be doubled. If they got their way, unemployment would be doubled. We COULD run this experiment if we want lots of people to suffer. There's no need, though. It's already been done. Way back when minimum wages were new, they accidentally made the law apply to Haiti, doubling wages. That destroyed the Haitian lace industry (Google for it -- there's no trace).

If this is interesting, visit my blog at http://angry-economist.russnelson.com.

-- Russ Nelson (nelson@crynwr.com), March 24, 2004.

I was wondering if anyone could help me i am researching into the minimum wage and government actios on wahes and i have to answer the following question:

What measures could be taken to lower the wages of some well-paid workers and raise the wages of some poor paid workers? Should the wages of these workers be affect by government actions? (In britain)

It would be much appreciative if anyone could help me as i am finding it very difficult thanks (A-level Student at KE

-- Natalie Louise Doherty (darwinspal85@hotmail.com), July 05, 2004.

There is a problem with profing if minimum-wage laws "result in unemployment" (no one talks about the laws destroying jobs, but that should happen before people become official unemployment statistics).

How can one proofe anything if politicians increase the minimum wages just a little. One need not only a huge sample (statistics, big samples are needed to measure small changes) and preferantly a static environment. It is not easy to gain statistical significance: http://www.economist.com/finance/displayStory.cfm?story_id=2384590 and unfortunately people believe these unsignificant reports (against all reason as well).

The Haitian example is a good natural experiment, and I hope that no one will dare to try it again.

-- Gísli Friðrik Þórisson (gisli.thorisson@skyrr.is), July 09, 2004.

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