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Minimum Wage And Its Effect On Employment

925 words - 4 pages


The relation between employment and minimum wage is one of the most debated topics in economics. The debate on minimum wage has been going on ever since it was first implemented in New Zeland in 1894 and Austrian colony of Victoria in 1896 (Starr, Gerald 1993). Although minimum wages has been implemented in most countries there is still heated debates about the benefits and drawbacks of minimum wage. Numerous studies have been conducted in the USA on the relation between minimum wage and employment, and many show contradictory results. While initial reports found a correlation between unemployment and minimum wage, subsequent studies have show no proven relationship. This report focuses on the findings of these later studies .

Minimum Wage:

The Merriam-Webster dictionary has defined minimum wage as “an amount of money that is the least amount per hour that the workers must be paid according to the law”. Supporters of minimum wage say that it boosts morale of workers, improves their standard of living and reduces inequality and poverty. Opponents of minimum wage claim that minimum wages increases unemployment in low-skilled workers and increases the cost of companies, forcing them to raise prices making their exports uncompetitive.
The minimum wage law is implemented in almost 90% of the countries in the world.(ILO, 2006) The minimum wage is different in different countries and in certain countries there are even different minimum wages in different states of the same country. Most European nations have minimum-wage laws as well; some, such as France and the United Kingdom, have significantly higher minimums than the United States. In the USA, the federal minimum wage set by the Department of Labour at $7.25 per hour.
According to an article published in the American Economic Review, 90% of the economists surveyed agreed that the minimum wage increases unemployment among low-skilled workers.( Kearl, Pope, Clayne, Whiting, Gordon, Wimmer, Larry, 1979) A survey by the IGM Economics Expert Panel(2013) asked noted economists if “A $9 minimum federal wage would make it difficult for low-skilled workers to find jobs.” A third of the economists agreed, another third disagreed and the rest were undecided.. Princeton economist David Bradford(1996) wrote that the minimum wage can be described to workers as saying “Unless you can find a job offering at least the minimum wage, you cannot accept employment”

Empirical Research in Minimum Wage:

Case 1
In 1977, The Minimum Wage Study Commission (MWSC) undertook a review of the data of minimum wages in the United States. The commission focused on the indexing of minimum wage to inflation and providing separate lower minimum wages for younger workers. In their independent summary of the research reviewed in the MWSC, Brown, Gilroy, and Kohen(2001), the three...

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