Hitting two birds with one stone: A tale on the (not so) secret miracle of minimum wages

Friedrich Leopold Sell,Michael Öllinger

doi:10.18533/jefs.v5i3.289

Abstract

In this note, we recall that unions traditionally pursue a policy of pushing higher average wages and, at the same time, for a compression of the structure of wages and salaries, which is some sort of equity. Given the precipitous fall of union density in many, if not all, OECD countries, the actual good climate for minimum wage policy comes at no surprise. Despite the fact that unions do dislike the intervention of labor market policy to the detriment of tariff autonomy, we can show that minimum wages are capable of serving both of the above-mentioned goals of unions and also help increase the overall wage quota in the economy. Hence, it can be concluded that the unions have a double dividend when inviting policy makers to pursue a policy of minimum wages: both the average wage rate can be increased and the dispersion of wages be lowered, ceteris paribus.

Highlights

Unions traditionally pursue a policy of pushing higher average wages and, at the same time, for a compression of the structure of wages and salaries, which is some equity
Even though unions do dislike the intervention of labor market policy to the detriment of tariff autonomy, it can be shown that minimum wages can serve both of the above-mentioned goals of unions and help increase the overall wage quota in the economy
Thereafter, we present some simple algebra on the wage quota and possible strategies adopted by unions to raise the latter

Summary

Introduction

Unions traditionally pursue a policy of pushing higher average wages and, at the same time, for a compression of the structure of wages and salaries, which is some equity. Even though unions do dislike the intervention of labor market policy to the detriment of tariff autonomy, it can be shown that minimum wages can serve both of the above-mentioned goals of unions and help increase the overall wage quota in the economy. The latter, as it seems, continues to be a core variable when it comes to the discussion of the eternal conflict between labor and capital.

What does the recent literature say?

The distribution of minimum wages