Abstract
Minimum wage laws have become one of the most debated state interventions in the economy, being considered by many specialists as a very efficient tool used to correct certain labour market failures. The aim of this paper is to explore the relationship between minimum wage and employment dynamics, with a special focus on some vulnerable categories recognized in the literature (young people, female workers, the elderly, etc.). Thus, we analysed the relation between the dynamics of minimum wages and that of employment in 22 EU countries, panel data (1999–2016). The results suggest a negative impact of the minimum wage on total employment and on sensitive categories (youth, female workers, the elderly). The long-running negative impact holds for all but one group (55–64 years). The models were tested for random and fixed effects and the results were correspondingly adjusted with country and time and random and fixed effects. Cointegration tests and the tests using lagged minimum wage also confirm a robust relationship between the dynamics of the minimum wage and that of employment over time. Our findings are consistent with many previous studies and confirm the recommendations to prudently use this public policy tool.
Highlights
According to Walter Heller, “an economist is a man who, when he finds something that works in practice, wonders if it works in theory.” This half-joke about economists is arguably true for many topics, but does not hold anymore in the field of minimum wage.there is a growing number of papers for which “what does not work in theory could work in practice”
The results indicate a negative correlation between the dynamics of minimum wage and that of employment
Except for the category of female employed persons aged between 55 and 64 years, all models confirmed a negative relationship between the log change of the minimum wage and the log change of employment rate
Summary
According to Walter Heller, “an economist is a man who, when he finds something that works in practice, wonders if it works in theory.” This half-joke about economists is arguably true for many topics, but does not hold anymore in the field of minimum wage.there is a growing number of papers for which “what does not work in theory could work in practice”. According to Walter Heller, “an economist is a man who, when he finds something that works in practice, wonders if it works in theory.”. This half-joke about economists is arguably true for many topics, but does not hold anymore in the field of minimum wage. Somewhat of a consensus among economists—as reflected by the most popular textbooks—was that the imposing of a minimum wage above the labour market price would have the same consequence as any other (effective) price floor on any other market. By employing a simple supply and demand model, one can quickly show that imposing a minimum wage above the equilibrium level will decrease the demand for labour while increasing supply. Involuntary unemployment is cited as one of the most important consequences of minimum wages
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