A controversy has been raging for many years about whether minimum wages increase or decrease employment of the low waged. But the effects of the minimum wage on other wages has not been so well studied. The idea behind the minimum wage is, I would assume, to raise the lowest wages to a level that makes them "living wages". What about the other wages? The Economic Logician writes
Natalya Shelkova suggests that the workers with productivities not much higher that the minimum wages get their wage depressed to the minimum wage. The reason is that the minimum wage acts like a coordination device for employers who thus implicitly collude to offer lower wages. Empirically, she shows that this happens more in states that follow the federal minimum wage, as well as at times where the minimum wages has not been changed for a long time. This implies that introducing a minimum wage reduces wages, at least for those who had wages reasonably close to this new minimum. However, increasing an existing minimum wage raises wages.
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