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Quick question about minimum wage

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  • 11-12-2008 2:15pm
    #1
    postalservice
    Registered Users Posts: 362 ✭✭


    Does the introduction of a binding minimum wage necessarily increase the total amount of wages paid to workers??


    No?:o


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    #2
    Économiste Monétaire
    Closed Accounts Posts: 2,208 ✭✭✭Économiste Monétaire


    I don't understand the question. Do you mean: will an increase in the minimum wage be offset by a reduction in employment, and there will not actually be an increase to total labour costs (total amount paid to all workers)?


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    #3
    postalservice
    Registered Users Posts: 362 ✭✭postalservice


    Économiste Monétaire wrote: »
    I don't understand the question. Do you mean: will an increase in the minimum wage be offset by a reduction in employment, and there will not actually be an increase to total labour costs (total amount paid to all workers)?

    Ya kinda.
    Ya...for example if before 100 people got €10....total 1000
    New min wage €12 and deman for labour falls to 80 people...toal 960.

    Lol...I think i've just worked it out for myself with your help.

    Many apologies:o


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    #4
    Économiste Monétaire
    Closed Accounts Posts: 2,208 ✭✭✭Économiste Monétaire


    No problem. When you assume that if the minimum wage increase will be exactly offset by a reduction in labour, you're stating that the elasticity of demand for labour, with respect to wages, is unitary. That's only true if the 'wage pool' is fixed. By that I mean, the employer has a fixed amount they will spend on labour, nothing more (in your example 1000). That's only true depending on the market you're talking about; in certain circumstances if an employer is earning 'economic rent' then they can forgo some of that to increase the total wage pool, employment remains either constant, or reduces by very little, relative to the increase in wages for workers. Basically, increasing wages isn't zero-sum with respect to cutting jobs in that case.

    That's the type of argument unions make when lobbying for increased minimum wages--that the decrease in employment is more than offset by the increase in total wages. It's an argument that goes back to John S Mill's time and is still being argued by employee and employer groups today vis-a-vis minimum wages, and general wage increases by each firm/industry :pac:


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