Given the pros and cons of minimum wages in advanced economies, let alone in emerging markets, what types of information should policy makers be armed with? In this blog, we speak with two experts on the topic – John T. Addison (Professor of Economic Theory, University of South Carolina) and David Neumark (Professor of Economics, University of California, Irvine) – both of whom stress the importance of weighing the trade-offs for their own countries.
In recent years, the minimum wage has become an increasingly popular for reducing inequality in many emerging markets, while others are still weighing whether to adopt one. But a lot of confusion still surrounds the impact of minimum wages in advanced economies, let alone in the emerging markets. In this blog, we speak with two experts on the topic: David Neumark (Professor of Economics, University of California, Irvine) and John T. Addison (Professor of Economic Theory, University of South Carolina). They both point to some job loss, especially for skilled workers, in advanced economies.
As governments debate labor market regulations — a highly controversial topic, sometimes for ideological reasons — it is vital to base decisions on empirical evidence. Thus, a welcome addition to the debate is the work of Gordon Betcherman — a Professor in the School of International Development and Global Studies, University of Ottawa — who contends that the key challenge for policy makers is to avoid the extremes of over- and under-regulation.
Economist and Nobel Prize laureate James M. Buchanan remarked to the Wall Street Journal in 1996 that "Just as no physicist would claim that "water runs uphill”, no self-respecting economist would claim that increases in the minimum wage increase employment." Of course this statement remains broadly true today, but the advent of better data, improved statistical techniques and the proliferation of country studies – have made economists far more careful about pre-judging the impact of minimum wages on employment and wages. Indeed, in a now famous study of fast food restaurants in New Jersey and Pennsylvania, David Card and Alan Krueger showed how the imposition of a minimum wage had no significant disemployment effects, and in some cases increased employment, arising out of a large enough increase in demand for the firms’ products.
The evidence for South Africa, some twenty years after the demise of apartheid, is equally compelling. In a two-part study, my co-authors and I find an intriguing set of contrasting economic outcomes, from the imposition of a series of sectoral minimum wage laws. In South Africa, the minimum wage setting body, known as the Employment Conditions Commission (ECC), advises the Minister of Labour on appropriate and feasible minimum wages for different sectors or sub-sectors in the economy. Currently, the economy has in place 11 such sectoral minimum wage laws in sectors ranging from Agriculture and Domestic Work, to Retail and Private Security.
In the developing world, there is a lively debate surrounding how minimum wages affect jobs, poverty, and income distribution. To shed light on the issue in South Africa, Haroon Bhorat, Ravi Kanbur, and Benjamin Stanwix recently did a study on the impact of the introduction in March 2003 of a minimum wage law in the agricultural sector. We spoke with Bhorat – a Professor of Economics at the University of Cape Town and an economic advisor to the Minister of Finance – on their findings.
For most countries, raising the minimum wage has long been considered a way to protect poor workers and their families. In fact, this active labor market intervention represents a common social protection policy in many Latin American countries. But how effective are minimum wages in protecting the poor? It’s a timely question as the debate heats up over whether minimum wages help avoid “the race to the bottom” or serve as a major impediment to greater labor market flexibility and competitiveness.
The garment industry in Bangladesh has been subject to several tests of resilience in recent years—global recession, energy shortage, input price increases, and labor unrest. Of late, the labor unrest has escalated apparently triggered by disagreement over re-fixation of minimum wage. The workers, for quite some time now, have been pressing for adjustment in minimum wage that was last increased in 2006, after 12 years, from Tk. 930* (about $60 in PPP) per month to Tk. 1,662 (about $108 in PPP) per month. The government in April 2010 committed that a new pay-scale for the RMG workers will be announced before Ramadan, and formed a Wage Board for making the wage recommendations. For reasons not yet fully understood, the labor unrest was reignited recently without waiting to hear what the Wage Board’s recommendations are. However, it is abundantly clear that dissatisfaction with the nominal level of the minimum wage is at the center of the discord between garment owners and workers.
- South Asia
- Macroeconomics and Economic Growth
- Private Sector Development
- Social Development
- Labor and Social Protection
- Urban Development
- garment industry
- Minimum Wage
- Purchasing Power
- Household Size
- Bangladesh Garment Manufacturers and Exporters Association
- Wage theory