minimum wage in labor economic

A detailed Summary of minimum wage in labor economic

In the article "The Minimum Wage and Product Differentials" Brodley S. Wimmer discusses the effects of a minimum wage increase on employment level, productivity,on different industries.

Considering the effect of a minimum wage increase on employment level, Wimmer first noted that the real value of the minimum wage between 1966 and 1997 has decreased by 17%. The real value of the minimum wage represents the nominal minimum wage adjusted to the level of inflation. Therefore according to Wimmer, since the value of the minimum is less than what it should be in real term, small minimum wage increase would significantly reflect the level of employment. However while the real value of the minimum wage declined for that period, large increase in the desperation of wages occurred at the same time. As a consequence the moderate effect of the real value of the minimum on employment was offset by the overall increase in wages.

On the other hand, how minimum wage increase affects employment depends on many factors.

First depending on how intensively the industry affected by an increase of minimum wage uses labor, the effect on employment will vary substantially. According to Wimmer, in labor-intensive sectors such as hotel, retail-trade in

For the fixed proportion factors industries, where there may be no substitution possibilities the effect on employment might be very little if any. It also depends on the short run and the long run, which effects employment. Minimum wage increase is good for the jobs where the demand for labor is inelastic and it's disadvantageous for the jobs where demand in elastic.

Moreover given the complexity of the legislation and the number of exemptions for minimum wage coverage, it is quite difficult to catch the effects of minimum wage on employment. Because a firm might use outsourcing in order to avoid the increase in wages if it does not benefit from an exemption.

dustry and so on, the inability of such industries to adjust their production processes from labor to capital make them more vulnerable to a minimum wage increase. For those types of sectors, an increase in the minimum wage is passed on to the customers by charging them higher prices or its absorbed by the firms that make the firms less productive where there is a decline in the scale effect. The effect of minimum wage increase does not decrease employment. To maintain their productivity, firms substitute the low skilled labor with high-skilled labor. However in capital-intensive sectors, the effect of a minimum wage increase is different because the firms have the possibility to substitute away from labor and use more capital and the firm will consider a substitution effect. As a consequence the employment level decreases. Moreover, S. Wimmer noted that because of the decrease in union membership among workers yielding a weak bargaining position of labor-intensive production processes. Therefore, employment increased during 1987-1996 while the minimum wage increased from $ 4.25 to $4.75 and later on to 4 5.15. However the minimum wage declined in real terms.

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Approximate Word count = 1235
Approximate Pages = 5 (250 words per page double spaced)

Category: Politics