Increasing the Minimum Wage with the State as Employer of Last Resort: A “Predistribution” Proposal for Mexico

Abstract

Mexico is a country of extreme inequality where opposition from politico-economic elites has prevented implementation of redistributive policies that Nicholas Kaldor suggested half a century ago as a means of funding increased social spending and making the tax system more progressive. In this article, we recommend less-conventional means of reducing inequality. Rather than waiting for production to increase, after which government would intervene through taxes and transfers (redistributive policies), we propose that the functioning of the labor market be modified in ways that will distribute the fruits of economic activity more equitably (predistributive policies). Specifically, we propose an increase in the minimum wage, made effective by a public employment program. This proposal, made within the framework of Lerner’s functional-finance theory, follows the recommendations of Keynes and Minsky.