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Moderate Minimum Wages, Article Review Example

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Article Review

Economists have historically opposed minimum wage laws on the basis of supply and demand theory that they reduce employment and Milton Friedman even called minimum wage laws, discrimination against low-skilled workers. But the supporters of minimum wage laws argue that such laws may actually boost both employment and pay. The idea was first supported by a study by two labor economists David Card and Alan Krueger who demonstrated that minimum wage law didn’t reduce employment in New Jersey’s fast-food restaurants but instead had the opposite effect. But Messrs Card and Krueger’s findings were opposed by David Neumark of the University of California at Irvine and William Wascher of the Federal Reserve who claimed that comparison of different states show lower employment on the average as a result of minimum wage laws. Arindrajit Dube at the University of Massachusetts-Amherst and Michael Reich of the University of California at Berkeley also didn’t find any evidence of minimum wage laws having negative impact on employment levels and argued that the differences may be due to other factors. Messrs Neumark and Wascher have maintained their opposition to minimum wage laws but they have found that higher minimum wage along with Earned Income Tax Credit does boost employment and earnings for single mothers though it still cost low-skilled minority men. Britain’s experience also lends credibility to the positive effect of minimum wage laws on employment. Britain’s minimum wage law has pushed up the pay for the bottom 5 percent as well as those on higher income scales. In addition, it has also reduced wage inequality. One particular observation has been the fact that wage inequality fell more for women of whom a higher proportion is on minimum wage as compared to men and effect was greater in low-income wage parts of Britain.

I believe that the relationship between minimum wage laws and employment level is positive. The opponents of minimum wage laws use the assumption that low wage makes labor cheaper and more attractive but they may be taking a simplified view of the issue. Labor costs are not only determined by wages only but also many other factors. It may be that lower wages result in lower job satisfaction and lower productivity and the drop in productivity outweighs the savings in labor costs. Higher wages may not only benefit the employers by increasing job satisfaction and productivity but may also yield other economic benefits such as low turnover rate and costs related to hiring and training employees. These benefits may outweigh the increase in labor costs due to higher average wages and the employers may respond by hiring even more workers. Another benefit of minimum wage law is that it increases earnings which may encourage the workers to increase their consumption levels, leading to both economic growth and even higher demand for labor. One reason minimum wage laws benefit women more than low-skilled men may be the fact that employers also raise their expectations from employees due to higher average wages. Women are getting education and learning skills in increasingly large numbers which increases their appeal to the employers. As Messrs Dube and Reich argue, it is possible that the relationship between minimum wage laws and employment level is weak and the variations in employment levels among states may have more to do with other factors such as the respective economic climate in those states.

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