Higher Minimum Wages Research Articles

Macroeconomic determinants of labour costs in the EU: a comprehensive panel and cluster analysis

Abstract Labour costs are a fundamental component of production expenses, significantly impacting both the quantity and quality of output. This study explores the determinants of labour costs within EU member states that have implemented minimum wage policies over the past two decades. The research technique includes a comprehensive panel analysis of EU member states to identify significant variables influencing labour costs, as well as cluster analysis to discover underlying patterns across the nations under examination. Our findings reveal that higher minimum wage levels, higher employment rates, increased labour productivity, and greater trade openness are positively correlated with higher labour costs. Specifically, increases in these variables lead to higher wages and a broader tax base, while greater trade openness results in elevated labour costs due to expanded market opportunities. Conversely, gross fixed capital formation negatively affects labour costs, as investments in production assets tend to reduce labour requirements or hours worked. The cluster analysis led to the identification of three distinct groups. The first cluster consists of well-developed economies with modest labour cost increases and average minimum wages. The second cluster includes countries with substantial labour cost increases, low minimum wages, and significant productivity gains. The third cluster features nations with high minimum wages and high employment rates. This paper contributes to the field by highlighting the complex interplay between labour costs and economic factors, offering insights for decision-makers to tailor macroeconomic and company-level strategies to specific local conditions. The findings emphasise the importance of balancing wage policies with sustainable economic development to enhance competitiveness while ensuring fair labour conditions.

Unions: Wage floors, seniority rules, and unemployment duration

This paper examines the impact of unions on unemployment and wages in a dynamic equilibrium search model. We model a union as imposing a minimum wage and rationing jobs to ensure that the union's most senior members are employed. This generates rest unemployment, where following a downturn in their labor market, unionized workers are willing to wait for jobs to reappear rather than search for a new labor market. We characterize the hazard rate of exiting unemployment, and show that it is low at long durations whenever the union-imposed minimum wage is high; we establish that a high union-imposed minimum wage generates a compressed wage distribution and a high turnover rate of jobs — properties consistent with the data. Finally, we show that seniority rules lead to lower unemployment levels, relative to an alternative rule allocating jobs to workers randomly.

The politics of the minimum wage: Explaining introduction and levels

AbstractThere is much economics research on the effects of minimum wages, but little research on their politics. Yet, ever more advanced capitalist democracies have introduced minimum wages, and the setting of minimum wage levels has become increasingly politicized. This article is the first comprehensive study of the politics of the minimum wage: We analyse the determinants of adopting minimum wages as well as what explains variation in their levels over time, based on a dataset of 33 OECD countries from 1960 to 2017. We find that the decline in collective bargaining is the main driving force behind the introduction of ever more minimum wages. At the same time, left‐wing parties in government are most likely to adopt a minimum wage when bargaining coverage is low. Left governments are also associated with higher minimum wages, especially when the government has full control over level‐setting.

Causes and Consequences of Minimum Wage Variation in China

This paper examines the effects of minimum wage policies on employment and income inequality in China. It is focusing on the interplay with foreign direct investment (FDI) and regional economic disparities. Since 1978, China’s economic reforms have led to significant growth and rising wages. Yet exacerbated income inequality. The study finds that FDI raises wages. It is particularly for skilled labor, while regional variations in minimum wage standards reflect economic activity differences between coastal and inland provinces. Higher minimum wages have mixed employment effects. It is negatively impacting prosperous Eastern regions while benefiting Central and Western regions. Additionally, higher wages spur productivity improvements and innovation among firms. Policy recommendations include developing region-specific wage policies. It enhances protections for migrant workers, encouraging investment in productivity-enhancing technologies. It promotes balanced economic development and strengthens labor regulation enforcement. These measures aim to balance wage growth with employment stability. Hence, this analysis promotes equitable economic development across China.

Beyond Dependency in Puerto Rico: Exploring Social and Solidarity Industrial Policy as an Alternative for the Global South

This article challenges the mainstream economic argument that attributes Puerto Rico’s economic struggles to overly generous federal welfare programs or an excessively high minimum wage. It traces the root of the island’s structural economic issues to its mid-twentieth-century dependent growth strategy, pre-dating these commonly cited factors. Examining the role of Puerto Rican elites, the article argues that their vested interests in the current model could undermine a suitable industrial policy program. The article posits that the island’s vibrant worker cooperative movement and Social and Solidarity Economy (SSE) offer a more promising foundation for an effective industrial policy agenda. Finally, it introduces the concept of Social and Solidarity Industrial Policy as a framework for sustainable development in Puerto Rico and potentially other Global South economies, leveraging democratic state firms, worker cooperatives, and other SSE initiatives. JEL Classification: B50, L52, O54

Labour market inequality in France and in the UK

Abstract This commentary shows that a high minimum wage, a rigid grid of minimum wages negotiated at central or sectoral level and legislation ensuring job stability for employees on permanent contracts have enabled France to contain wage inequalities. On the other hand, there is a low employment rate and a high unemployment rate that create significant inequalities in access to employment and a high poverty rate before taxes and transfers.

Economic freedom, the minimum wage, and food insecurity

AbstractEconomic freedom, a measure of the degree of freedom from government intervention in the economy, has been found to be associated with many positive economic outcomes, such as lower unemployment rates, and higher growth of income, employment, and population. One area that remains unexplored is the relationship with food insecurity. Areas with more government intervention may be expected to have higher food insecurity because those interventions can create greater impediments to people's ability to prosper economically. One specific example of that is the minimum wage, which may make it harder for inexperienced low‐skilled workers to obtain employment. We provide the first state‐level examination of the relationship between food insecurity and economic freedom and find higher values of economic freedom (lower levels of intervention) are associated with lower food insecurity. We also examine one specific component of that economic freedom measure, the minimum wage, and find some limited evidence that higher minimum wages are associated with higher food insecurity.

Determining the relationship between unemployment and minimum wage in Turkey

The minimum wage, which has increased more than tenfold in Turkey since 2014, has been a controversial topic for Turkish economic policy in the last few years. This controversy is due to a variety of factors including the high rate of minimum wage-bound workers and the minimum wage dropping below the hunger and poverty limits because of inflation despite rapid increase in the nominal minimum wage. The literature on the Turkish labor market, as well as the broader empirical and theoretical literature in economics, is divided about the employment effect of minimum wage. We hypothesized that the minimum wage has a positive and a Granger causal relationship with unemployment because the high rate of minimum wage bound workers suggests a minimum wage increase might introduce a lot of rigidity in the labor market. To test this hypothesis, we conducted Ordinary Least Squares (OLS) regression and Granger causality tests using unemployment, minimum wage, gross domestic product (GDP), and producer price index (PPI) data from 2014 to 2022. We concluded that there is a positive correlation between minimum wage and unemployment and that the minimum wage has a Granger causal link to unemployment. Although further research is required to establish a definite causal link, the findings in this paper establish a positive relationship and strengthen the case that a higher minimum wage has a causal link to a higher level of unemployment. These results imply that greater consideration of the of minimum wage on unemployment is needed in minimum wage setting.

Why do national skill systems vary? The state’s role in skill system institutions for maintaining growth models

ABSTRACT This article combines the comparative political economy of skill formation literature with the one on growth models to analyse the state's role in skill systems of late industrialising countries. It focuses on Mexico and Turkey, which constitute crucial cases for a most similar case analysis. The article shows that Mexico and Turkey followed different growth models after their economic liberalisation, which led to distinct state roles in two key skill system institutions, namely the minimum wage and the vocational education and training (VET) system. In Mexico, the state aligned these institutions with the ‘dependent-downgrading' growth model, which was reliant on external demand and investments with low industrial upgrading and sometimes downgrading, and minimal working-class cohesion. Minimising labour costs was prioritised to attract foreign investment and to reduce the prices of exports, leading to extremely low wages and a liberal VET system in Mexico. In Turkey, the growth model was ‘domestic-upgrading’ with higher role of domestic investments and demand, and some improvements in industrial upgrading and working-class social cohesion. Ensuring high minimum wage and comprehensive VET system constituted key strategies for the state to maintain this growth model in Turkey, leading to relatively higher minimum wage and a statist VET system.

Does High Minimum Wage Attract Immigrants?

Immigration is associated with an effort to get a better living. Therefore, this research analyzes whether the high minimum wage attracts immigrants. This study utilizes secondary data from Indonesian Statistics that cover the condition of immigrants in Java, an island with the highest population density. In this research, the proportion of immigrants is the dependent variable. At the same time, the minimum wage is the independent variable and the percentage of formal jobs and prosperity as covariates. The secondary data is analyzed by regression based on Fully Modified Ordinary Least Squares (FMOLS). This regression analysis is complemented by primary data through questionnaires sent to some economic experts. The primary data is analyzed by Delphi Method. The regression result shows no association between the proportion of immigrants and minimum wage. A high minimum wage does not attract people to enter an area. At the same time, a percentage of formal jobs and prosperity attract people to immigrate. In addition, the Delphi analysis exhibits similar results. The expert’s opinion about the impact of minimum wage is not convergence. Not all experts agree that migrant considers the high minimum wage. However, all experts agree that formal jobs, infrastructure, prosperity, amenities, and living costs have an impact on immigrants.

The unusual French policy mix towards labour market inequalities

AbstractThis short paper presents an overview of the French policy mix towards labour market inequalities, consisting of a high minimum wage together with targeted payroll tax cuts around the minimum wage. It reviews the recent literature documenting the impact of that policy mix on employment and wage inequality. The main takeaways are that pre‐tax wage inequality has been increasing in France rather like it has in the UK and the US, while net wage inequality has decreased and then remained stable. The employment experience for the middle age group is also very close in France to the one in the UK and the US, while it differs markedly at young and older ages. The paper offers two more general thoughts on how to make progress in comparing policy options. First, most studies tend to give too much weight to tax and benefit reforms in being able to reduce inequality as they disregard incidence mechanisms, and fail to incorporate properly longer‐term effects of other policies on pre‐tax inequality. Second, the design of effective policy should always incorporate simplicity and salience. Failure to do so is likely to lead to little expected impact of such policies.

Calculating Optimal Nonlinear Taxes Using Censored Income Data

Approximating the skill distribution via observed incomes is a central aspect of estimating the optimal redistributive taxes. Emerging economies may exhibit high minimum wage take-up rates, hiding some of the heterogeneity in skill distribution. This paper shows in the context of Turkey that accounting for the minimum wage policy when approximating skills considerably alters the estimates of optimal redistributive income taxes. Once the mass around the minimum wage is treated as left censored, the optimal tax scheme is significantly more redistributive in comparison to assuming no censoring. This is because allocating some of the mass around the minimum wage towards the lower parts of the skill distribution reduces the total skill stock and increases the standard deviation of the distribution. Consequently, the optimal marginal income taxes become higher, especially for the middle-skill group.

A Framework for Income, Inheritance, and Wealth Tax in America amid Increasing Income Inequality when the Richest are Leaving even the Rich Far Behind

A Framework for Income, Inheritance, and Wealth Tax in America amid Increasing Income Inequality when the Richest are Leaving even the Rich Far Behind

A study of the anti-poverty effect of minimum wage in underdeveloped areas: based on the perspective of farmers’ employment choices and income

The minimum wage can play an active role in anti-poverty. The theoretical analysis and simulation find that a higher minimum wage can increase farmers’ employment intention and income, and has a more obvious effect on low-income farmers. Statistics from questionnaire surveys in three districts in the western China show that a higher minimum wage will promote farmers who leave behind in hometown to work in local enterprises. The minimum wage has both direct and indirect effects on the income of households with low awareness of increasing income, and both are positive. Further statistical analysis revealed that farmers in these areas have great needs for employment training and entrepreneurship support. So, if the government would support local enterprises, encourage entrepreneurship and supervise the implementation of minimum wage standards, this can provide support for anti-poverty initiatives.

There is no capitalist conspiracy and the rich are not all‐powerful

There is no capitalist conspiracy and the rich are not all‐powerful

RESPONSE TO MINIMUM WAGE SHOCK IN MALAYSIA: SMEs’ CHANNEL OF ADJUSTMENT

On 1st May 2022, the Malaysian government raised the minimum wage (MW) to RM1,500, with a 25% increase. Even though there seem to be some signs of economic recovery, the Malaysian economy has yet to crawl out of a downturn. MW has been one of the most debated and controversial topics in economic literature due to mixed results on employment. While it may be too early for any empirical study on the impact of this recent hike, we are not completely clueless about what to expect. This paper aims to offer valuable insights into the potential implications of the new minimum wage policy (MWP) through a narrative literature review approach. Although no conclusive prediction can be made, the literature on developing countries with high MW increases seems to suggest that higher disemployment, reduced foreign worker dependency, formal sector (FS) migration to the informal sector (IS), and higher non-compliance are likely to be expected. This paper contributes to the understanding of MW in developing countries. Based on the channel of adjustment (CoA) model, alternate suggestions are offered to small and medium enterprises (SMEs) to better cope with the financial stress caused by MWP.

The minimum wage and the locations of new business entries in China: Estimates based on a refined border approach

This paper studies how the local adjustments of minimum wage levels in China affect the locations of new business entries. We use a refined border approach to address the endogeneity concerns regarding local minimum wage levels and examine whether differential changes in minimum wage levels on both sides of a county border result in abrupt changes in business entries within short distances from the border. Our results suggest that a 10% increase in the minimum wage levels decreases business entries by 2.69%. This effect is magnified for industries that pay lower average salaries or employ a larger share of unskilled workers. The entry-discouraging effects of high minimum wage levels are stronger when closer to the border where the identification assumption of the border approach is the most likely to hold and gradually decrease as we expand the widths of the border areas. Moreover, although we expect businesses could move across county borders at relatively low costs to avoid high minimum wage levels, we find that business relocation is rare and does not significantly respond to changes in the cross-county difference in minimum wage levels.

PENGARUH PELATIHAN ONLINE TERHADAP KINERJA KARYAWAN PADA PT. TUNASKARYA INDOSWASTA

Human Resources is an important property by a company. Having a high performance, attitude and motivation from human resources will support the main goals of the company. Achieving the company's main goals will enable the company to survive amid the high minimum wages in Indonesia, especially at PT. Tunaskarya Indoswasta. The main objective of this research is to find out that online training has a significant effect on the performance of employees at PT. Tunaskarya Indoswasta even partially or simultaneously. The population in this study were all employees of the production section of PT. Tunaskarya Indoswasta, amounting to 147 people, from this population the researcher will choose a sample that is used as a respondent in this study. Then the researchers used a simple random sample in this study. By using the Slovin formula, the researcher obtained a sample of 108 people. The data collection method uses an answer sheet. Data analysis used simple linear regression with the help of SPSS software. The results showed that online training had an effect on employee performance while the percentage of the coefficient of determination (R2) was 25.30%. This means that performance is influenced by online training 25.30%, while others are influenced by other variables disclosed.

Did Minimum Wage Policy Changes Impact Home Health Workforce?

The shortage of home health aides has been exacerbated in recent years partially because of low wages. Minimum wage (MW) policy changes may alleviate this workforce shortage. This study examined the effects of MW policies on wages and employment of home health aides. We performed a county-level longitudinal analysis using 2012 to 2018 national data. The study cohort included 2,496 counties and focused on all workers in the home health industry. Outcome variables included wages and the employment of home health aides. Key variables of interest included the consumer price index adjusted state MW and a set of variables that captured the effect of the Fair Labor Standards Act (FLSA) extension. This study found that home health aides' hourly wages were $1.00 higher (p = .011) in states that increased their MWs from below $8 to above $10. The FLSA extension was associated with $1.15 higher wages in states with higher MWs (i.e., state MW above $10 in 2014). The FLSA extension was associated with higher employment of home health aides in less-competitive markets, rather than high- or average-competitive markets. This study suggests that state MW increases combined with the FLSA extension may help maintain the current home health workforce and improve their wages.

Economic conditions and the number of children in foster care

In the late 2010s, foster care capacity was declining. In this study, we show that increasing the affordability of fostering a child could increase foster care capacity. We use administrative data from Adoption & Foster Care Statistics (AFCARS) to examine the association between state-level economic factors and the number of children in foster care from 1996 to 2016. Using a panel regression, we found that a 10 % increase in state foster care payments was associated with a 0.9 % increase in the number of children in foster care in that state. As an example, North Carolina increased its payment rates to foster parents in 2008. Using a triple-difference strategy, we found that this increase led to a 20 % increase in the number of children in foster care relative to children placed in other settings and relative to other states. Second, we examined the role of housing affordability: higher housing prices were associated with a lower number of children in foster care, consistent with the cost of space being a constraint for foster parents. Third, we examined the role of labor market opportunities: a higher minimum wage and higher female employment were associated with a greater number of children in foster care. This result is inconsistent with the idea that foster care is just a job, so that higher pay in other jobs and more time spent in employment would dissuade people from fostering a child. Instead, our results are consistent with foster parents acting out of altruism under financial constraints. Our results suggest that relaxing these financial constraints by, for example, increasing board rates enables people to act on their altruistic motives and foster a child.