Does the Minimum Wage Cause Inefficient Rationing?

Abstract By not allowing wages to clear the labor market, the minimum wage could cause workers with low reservation wages to be rationed out while equally skilled workers with higher reservation wages are employed. This paper exploits overlapping CPS panels to more precisely identify those most affected by the minimum wage, a group I refer to as the "unskilled." I test for inefficient rationing by examining whether the reservation wages of employed unskilled workers in states where the 1990-1991 federal minimum wage increase had the largest impact rose relative to reservation wages of unskilled workers in other states. I find that proxies for reservation wages of unskilled workers in high-impact states did not rise relative to reservation wages in other states, suggesting that the increase in the minimum wage did not cause jobs to be allocated less efficiently. However, even if rationing is efficient, the minimum wage can still entail other efficiency costs (e.g., from employment reductions).

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Welfare implications of minimum wage increase in Nigeria

International Journal of Social Economics ◽

10.1108/ijse-07-2016-0198 ◽

2017 ◽

Vol 44 (12) ◽

pp. 2141-2156 ◽

Cited By ~ 2

Author(s):

Taiwo Aderemi ◽

Fidelis Ogwumike

Keyword(s):

Minimum Wage ◽

Computable General Equilibrium ◽

Wage Gap ◽

Negative Impact ◽

Consumer Price Index ◽

Wage Increase ◽

Minimum Wage Increase ◽

Skilled Workers ◽

Wage Policy ◽

Content Type

Purpose The primary motive of a minimum wage policy is to provide a wage floor for poorly paid workers and improve their welfare. In Nigeria, real minimum wage declined by 60 per cent between 1974 and 2011, thus reducing the welfare of workers. The wage gap between low skilled and high skilled workers have also widened over the years in favour of the latter. There are concerns that the series of minimum wage increase in Nigeria may not be welfare-enhancing. The paper aims to discuss these issues. Design/methodology/approach This study examined the welfare effects of minimum wage increase in Nigeria using a computable general equilibrium model. The model was calibrated using a 2006 Social Accounting Matrix and four sets of scenarios (20, 35, 50 and 140 per cent wage increases), were simulated. Findings The findings show that employers substituted other labour categories for minimum wage workers. This increases the wage rates of other labour. The consumer price index also increased as firms partly pass-on increased labour cost to consumers. Generally, the simulations show that minimum wage policies worsen the welfare of its intended beneficiaries, due to negative impact on prices and employment. Originality/value This study deviates from existing studies on minimum wage in Nigeria, by providing a proper disaggregation of the labour market that represents the Nigerian economy. In this regard, the informal sector was accommodated and the potential impact of the minimum wage on this sector determined. It also adopted the equivalent variation welfare measure which incorporates price and consumption effects in measuring welfare.

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Minimum wages effects on low-skilled workers in less developed regions of China

International Journal of Manpower ◽

10.1108/ijm-10-2016-0189 ◽

2018 ◽

Vol 39 (3) ◽

pp. 455-467 ◽

Cited By ~ 3

Author(s):

Jing Wang ◽

Morley Gunderson

Keyword(s):

Minimum Wage ◽

Comparison Group ◽

Minimum Wages ◽

Labour Markets ◽

Employment Effect ◽

Double Difference ◽

Wage Increase ◽

Minimum Wage Increase ◽

Skilled Workers ◽

Content Type

Purpose The purpose of this paper is to estimate the causal effect of minimum wages on the employment of low-skilled workers in less developed regions of China. Design/methodology/approach Based on data from the China Health and Nutrition Survey, a double-difference (DD) methodology is used to compare the employment of low-skilled individuals before and after a minimum wage increase in their provinces with a comparison group of individuals in provinces that did not have a minimum wage increase. Also, a triple-difference methodology (DDD) is used that also includes an additional control group of highly educated workers as a within-province internal comparison group that should not be affected by a minimum wage increase. Findings No evidence of an adverse employment effect is found in any of the 36 different estimates, consistent with recent US evidence that uses a similar DD methodology. Research limitations/implications The data are not national representative; rather heavily weighted towards the less developed Central, Western and parts of the Eastern Regions of China. This may partially explain the absence of the theoretically expected adverse employment effect. Other related reasons are discussed, including: lack of enforcement in those less developed regions; a large presence of state-owned enterprises in the regions where employment security clause remains intact; the relatively less developed labour markets in the regions including where employers may behave in a monopsony fashion in their labour markets; shock effects; and cost offsets from reduced fringe benefits and increases in the pace of work. This paper was unable to disentangle the separate effect of these possible factors. Originality/value This is one of the few studies on minimum wages in China to focus on low-skilled workers in less developed regions, to use individuals as the unit of observation rather than aggregates, and to provide causal estimates based on DD and DDD methodologies.

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Heterogeneous effects of minimum wage on labor market outcomes: A case study from Turkey

IZA Journal of Labor Policy ◽

10.2478/izajolp-2020-0016 ◽

2020 ◽

Vol 10 (1) ◽

Author(s):

Enes Işık ◽

Özgür Orhangazi ◽

Hasan Tekgüç

Keyword(s):

Labor Market ◽

Minimum Wage ◽

Small Firms ◽

Positive Impact ◽

Tertiary Education ◽

Labor Market Outcomes ◽

Wage Increase ◽

Minimum Wage Increase ◽

Market Outcomes ◽

Heterogeneous Effects

AbstractWe assess the effects of a sharp minimum wage increase on wages, informality, and employment in Turkey, a large developing economy with one of the highest minimum wage-to-average wage ratios among OECD countries and widespread discrepancies between labor market outcomes of women and of men. We look at the quasi-experimental 2016 minimum wage increase and pay attention to identifying information coming from demographic groups. We find that the increase in the minimum wage had an economically substantial and statistically significant positive impact on wages. Despite the positive wage effects of the increase, we find no negative employment effects. However, we show that the minimum wage increase may have caused an increase in the share of informal employment among workers with less than tertiary education, especially for such workers working for small firms.

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Minimum Wage Increase and Consume Prices

SSRN Electronic Journal ◽

10.2139/ssrn.2782784 ◽

2016 ◽

Author(s):

Eduart Gjokutaj

Keyword(s):

Minimum Wage ◽

Wage Increase ◽

Minimum Wage Increase

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The impact of a minimum wage change on the distribution of wages and household income

Oxford Economic Papers ◽

10.1093/oep/gpaa048 ◽

2020 ◽

Author(s):

Paul Redmond ◽

Karina Doorley ◽

Seamus McGuinness

Keyword(s):

Income Distribution ◽

Minimum Wage ◽

Wage Inequality ◽

Household Income ◽

Spillover Effects ◽

Wage Distribution ◽

Wage Increase ◽

Minimum Wage Increase ◽

Wage Change ◽

The Impact

Abstract We use distribution regression analysis to study the impact of a 6% increase in the Irish minimum wage on the distribution of hourly wages and household income. Wage inequality, measured by the ratio of wages in the 90th and 10th percentiles and the 75th and 25th percentiles, decreased by approximately 8 and 4%, respectively. The results point towards wage spillover effects up to the 30th percentile of the wage distribution. We show that minimum wage workers are spread throughout the household income distribution and are often located in high-income households. Therefore, while we observe strong effects on the wage distribution, the impact of a minimum wage increase on the household income distribution is quite limited.

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