Why does inequality grow? Can we do something about it?
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.
Over the past couple of years, the OECD has highlighted the rapidly widening income dispersion in OECD countries (see e.g. OECD 2008, OECD 2014). The recent publication of Thomas Piketty’s Capital in the 21st Century, gave new impetus to this debate.
Poverty and income inequality
income inequality, minimum wage, wage-setting
Minimum wages and firm employment: Evidence from China
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.
The impact of the minimum wage on employment is a polarising issue in ‘advanced’ – the term commonly used for ‘high-income’ – economies. In the blogosphere, one side is often accused of cruelty (‘they don’t care about the working poor’) and the other of stupidity (‘they don’t realise that labour demand curves slope downwards’). The evidence is mixed. The majority of studies find that minimum wage changes lower employment by a modest amount (Neumark and Wascher 2007) or have little impact (Schmitt 2013).
China, minimum wage
Minimum wages: the effects on employment and labour-force turnover
Pierre Brochu, David A 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.
On 14 January 2014 a group of 75 economists, including seven Nobel laureates, released a letter calling for an increase in the US minimum wage (Woellert 2014). At the same time, George Osborne, the Conservative Chancellor of the Exchequer in the UK, has called for the minimum wage in that country to rise by more than the rate of inflation this year (BBC 2014). In both cases, the key argument for an increase concerns a need for fairness in insuring that the lowest paid workers share in the benefits of post-recession economic growth.
employment, Labour Markets, minimum wage
The minimum wage and employment dynamics
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.
The minimum wage remains one of the most controversial policies in both the public discourse and labour economics. The recent proposal by President Obama to raise the federal minimum wage has brought this issue to the fore once again (see Aaronson and French 2013). The reaction was predictable: some argued that this would cause serious unemployment problems, while others pointed to opposing research showing that the minimum wage has little, if any, effect on employment.
US, minimum wage
Spending, income, and debt responses to minimum-wage hikes
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.
Minimum wages, maximum wages, and the level of economic discourse in Germany
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.
This article is available in English at Vox’s partner site Telos.
Germany, minimum wage, maximum wage