In light of the Eurozone Crisis, some countries have implemented reforms to collective wage bargaining institutions, which can be responsible for wage rigidities that are problematic in the face of rising unemployment. This column describes collective wage bargaining in France and how national minimum wage increases are transmitted to wage floors set by industry-level agreements. An increase in the national minimum wage leads to an increase in negotiated industry-level wage floors, which firms then use as references for their wage policy. This might partly explain why French base wages have continued to increase despite recent rising unemployment.
Denis Fougère, Erwan Gautier, Sébastien Roux, 28 May 2016
Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, 31 March 2016
A new National Living Wage (NLW) replaces the UK’s National Minimum Wage from April. This column reports the views of leading experts on its likely effects on employment, wages, and prices. A majority of respondents in the monthly Centre for Macroeconomics survey believe that the NLW will not lead to significantly lower employment; similarly, a majority of respondents believe that the NLW will only have a muted effect on wages and prices. The key unknown for many in considering the overall economic impact of the NLW is how quickly the UK economy will grow over the coming years.
Daniel Aaronson, Eric French, Isaac Sorkin, 19 March 2016
Economists these days tend to think that a minimum wage can be a useful policy tool for reducing poverty while leaving employment numbers intact, as long as the policy is well designed. This column looks at recent evidence from a new perspective and claims that much of the recent research suggesting that minimum wage hikes barely reduce the number of jobs in the short run should be taken with caution. The longer-run disemployment effects are potentially large.
Jeffrey Clemens, Michael Wither, 14 January 2015
The merit of a minimum wage is a classic issue of contention in economics and is of particular interest during a contraction. This column uses worker-level microdata to investigate the effect of a federal policy change in the US that affected some states more than others. The authors evaluate not only the proximate effects on employment, but also follow workers for up to three years afterward to track career trajectory following a minimum wage hike.
Coen Teulings, 15 June 2014
Income inequality has increased worldwide in recent years. This column discusses the role of technological progress, globalisation, and the liberalisation of labour-market institutions in this growing inequality. The liberalisation of labour market institutions has made labour markets more flexible and created many jobs. But beyond a certain point, the net effect of further liberalisation might be negative for society.
Yi Huang, Prakash Loungani, Gewei Wang, 16 May 2014
Minimum wages are set to increase in China under the country’s latest five-year plan. This column documents that past increases led to lower employment. However, the impact is heterogeneous. Firms with high average wages or large profit margins actually increase employment, while those with low average wages or small profit margins downsize.
Pierre Brochu, David Green, 22 January 2014
Economic research finds little evidence in support of the hypothesis that an increase in minimum wages significantly affects employment – either positively or negatively. This column discusses a study of the impact of minimum-wage changes on turnover rates. Minimum-wage increases are associated with a lower probability that a job will end, and with a lower probability that an unemployed person will find work. The former effect is established only for newly hired workers. Increases in the minimum wages are also associated with more stable jobs for all low educated workers. Thus, the trade-off between fewer jobs with higher wages and more job stability versus easier access to jobs should be taken into account in the minimum-wage policy debates.
Jonathan Meer, Jeremy West, 10 September 2013
The recent proposal by President Obama to raise the federal minimum wage has brought this issue back into the limelight. This column presents new research suggesting minimum-wage policies may not cause an immediate shock to employment, as is often feared, but do cause a reduction in the rate of net job growth. The long-run prospects for individuals are damaged, as they are delayed the opportunity to develop skills and work experience – that crucial first rung on the career ladder.
Daniel Aaronson, Eric French, 06 March 2013
How are spending, income and debt affected by minimum-wage hikes? This column argues that putting money into the hands of consumers, especially low-income consumers, ultimately leads to predictable increases in spending. Evidence suggests that a $1 wage hike increases household spending by minimum-wage workers – usually in the form of collateralised debt – by around $700 per quarter.
Michael Burda, 28 January 2008
German discussion of economic policy is appallingly demagogic. Neglect of economic reasoning has resulted in the threat of a maximum wage and passage of a minimum wage that will cost thousands of jobs.