Minimum Wages

Minimum Wages

David Neumark
William L. Wascher
Copyright Date: 2008
Published by: MIT Press
Pages: 392
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  • Book Info
    Minimum Wages
    Book Description:

    Minimum wages exist in more than one hundred countries, both industrialized and developing. The United States passed a federal minimum wage law in 1938 and has increased the minimum wage and its coverage at irregular intervals ever since; in addition, as of the beginning of 2008, thirty-two states and the District of Columbia had established a minimum wage higher than the federal level, and numerous other local jurisdictions had in place "living wage" laws. Over the years, the minimum wage has been popular with the public, controversial in the political arena, and the subject of vigorous debate among economists over its costs and benefits. In this book, David Neumark and William Wascher offer a comprehensive overview of the evidence on the economic effects of minimum wages. Synthesizing nearly two decades of their own research and reviewing other research that touches on the same questions, Neumark and Wascher discuss the effects of minimum wages on employment and hours, the acquisition of skills, the wage and income distributions, longer-term labor market outcomes, prices, and the aggregate economy. Arguing that the usual focus on employment effects is too limiting, they present a broader, empirically based inquiry that will better inform policymakers about the costs and benefits of the minimum wage. Based on their comprehensive reading of the evidence, Neumark and Wascher argue that minimum wages do not achieve the main goals set forth by their supporters. They reduce employment opportunities for less-skilled workers and tend to reduce their earnings; they are not an effective means of reducing poverty; and they appear to have adverse longer-term effects on wages and earnings, in part by reducing the acquisition of human capital. The authors argue that policymakers should instead look for other tools to raise the wages of low-skill workers and to provide poor families with an acceptable standard of living.

    eISBN: 978-0-262-28056-3
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Acknowledgments
    (pp. ix-x)
  4. 1 Introduction
    (pp. 1-8)

    The minimum wage has been a core element of public policy for more than a century. Originating in the 1890s in New Zealand and Australia, minimum wages spread to the United Kingdom in 1909 and to nearly one-third of U.S. states during the next two decades. In 1938, the U.S. Congress passed a federal minimum wage law as part of the Fair Labor Standards Act. Since that time, minimum wages have been introduced in some form or another in numerous other industrialized countries, as well as in some developing countries. As a result, by the 1990s, minimum wages existed in...

  5. 2 The History of the Minimum Wage in the United States
    (pp. 9-36)

    The minimum wage has a lengthy and extensive history in the United States, in terms of both its implementation and its interaction with economic research. In this chapter, we review the political, legal, and economic developments over the last century that resulted in todayʹs minimum wage laws. We also discuss how previous generations of economists approached questions about the economic effects of minimum wages.

    The purpose of this chapter is twofold. The first is to present a brief history of the minimum wage over the past century. In this regard, we trace the origins of the minimum wage back to...

  6. 3 The Effects of Minimum Wages on Employment
    (pp. 37-106)

    How minimum wages affect employment has been the most prominent issue with respect to the evaluation of minimum wage policies, and indeed one of the most researched topics in economics. The question is clearly important from a policy perspective, as any potential benefits of the minimum wage in terms of higher earnings are offset by adverse employment effects that may result. But the employment effects of minimum wages are also significant to economists because they provide a means of testing alternative models of the labor market. For example, Stigler (1946), while acknowledging that a higher minimum wage could theoretically raise...

  7. 4 Minimum Wage Effects on the Distribution of Wages and Earnings
    (pp. 107-140)

    The previous chapter reviewed the extensive literature on the employment effects of minimum wages, highlighting along the way research that focuses on the workers most directly affected by changes in the wage floor. In this chapter, we examine how minimum wage changes affect wages and earnings, both for low-wage workers and for workers higher in the wage distribution.

    We have two major goals in this chapter. The first is to describe how minimum wages affect the wage distribution. Assuming reasonable levels of enforcement and compliance, the most obvious effect is to truncate or thin out the lower tail of the...

  8. 5 The Effects of Minimum Wages on the Distribution of Incomes
    (pp. 141-190)

    There is something of a disjuncture in debates over the minimum wage. As the massive number of studies on the employment effects of minimum wages indicates, much of the debate about minimum wages centers on their employment effects. In contrast, policymakers tend to focus much more on distributional goals in advocating minimum wages. For example, President Bill Clinton, in calling for an increase in the minimum wage in 1998, argued that minimum wages will ʺraise the living standards of 12 million hardworking Americans.ʺ¹ And even more explicitly, Senator Edward Kennedy, a perennial sponsor of legislation to raise the federal minimum...

  9. 6 The Effects of Minimum Wages on Skills
    (pp. 191-224)

    Most research on minimum wages, and much of the research we have discussed up to this point, focuses on the employment and wage effects of minimum wages. However, as we have emphasized, this focus provides too narrow a basis for policy evaluation. The previous two chapters discussed this limitation with respect to distributional effects, arguing that from a policy standpoint, the distributional consequences of minimum wages—especially for family incomes—are more important than its effects on employment and wages. But even this broader focus misses another potentially important dimension of the effects of minimum wages. In particular, minimum wages...

  10. 7 The Effects of Minimum Wages on Prices and Profits
    (pp. 225-248)

    In comparison with the voluminous literature on the effects of the minimum wage on employment and wages, there has been relatively little research on the influence of minimum wages on prices or profits. In part, this may reflect a lack of available data on prices and profits at the firm level. However, it also reemphasizes our earlier criticism about the disproportionate attention that researchers have given to the employment effects of minimum wages at the expense of other considerations.

    There are reasons to be interested in the price effects of minimum wages. First, although the direct effect of a minimum...

  11. 8 The Political Economy of Minimum Wages
    (pp. 249-284)

    We have spent much of this book presenting evidence that minimum wages are a relatively ineffective social policy for aiding the poor. They entail disemployment effects that are felt most heavily by low-skilled workers. They discourage human capital formation. They lead to price increases on products frequently consumed by low-income families. And, on balance, they seem to do little, if anything, to raise the incomes of poor and near-poor families, and more likely have adverse effects on these families.

    Despite these findings, minimum wages are extraordinarily popular. According to a 2006 survey conducted by the Pew Research Center, 83 percent...

  12. 9 Summary and Conclusions
    (pp. 285-296)

    We have reviewed and discussed many facets of the effects of minimum wages, including their impact on employment, the wage and income distributions, skills and education, and prices and profits. Aside from the breadth of the topics covered in this book, the extent of the evidence that we have presented is immense, and of course some of it is in conflict. Nonetheless, one of the important tasks of synthesizing a large body of research is to try to draw some general conclusions—a task that is particularly important in public policy research, where the goal is ultimately to provide some...

  13. Notes
    (pp. 297-334)
  14. References
    (pp. 335-358)
  15. Index
    (pp. 359-378)