Minimum wages

There is a new book out on the effects of the minimum wage, Minimum Wages by David Neumark and William L. Wascher, MIT Press, 2008.

David Neumark is Professor of Economics at the University of California, Irvine. He is also a Research Associate at the National Bureau of Economic Research, a Senior Fellow at the Public Policy Institute of California, and a Research Fellow at the Institute for the Study of Labor. William L. Wascher is Associate Director in the Division of Research and Statistics at the Federal Reserve Board.

Minimum wages exist in more than one hundred countries all around the world. The United States passed a federal minimum wage law in 1938, in New Zealand the minimum wage was introudced in 1894, and has increased the minimum wage and its coverage at irregular intervals ever since; in addition, as of the beginning of 2008, thirty-two states and the District of Columbia had established a minimum wage higher than the federal level, and numerous other local jurisdictions had in place "living wage" laws. Over the years, the minimum wage has been popular with the public, controversial in the political arena, and the subject of vigorous debate among economists over its costs and benefits.

In this book, David Neumark and William Wascher offer a comprehensive overview of the evidence on the economic effects of minimum wages. Synthesizing nearly two decades of their own research and reviewing other research that touches on the same questions, Neumark and Wascher discuss the effects of minimum wages on employment and hours, the acquisition of skills, the wage and income distributions, longer-term labour market outcomes, prices, and the aggregate economy.

Based on their reading of the evidence, Neumark and Wascher argue that minimum wages do not achieve the main goals set forth by their supporters. They reduce employment opportunities for less-skilled workers and tend to reduce their earnings; they are not an effective means of reducing poverty; and they appear to have adverse longer-term effects on wages and earnings, in part by reducing the acquisition of human capital. The authors argue that policymakers should instead look for other tools to raise the wages of low-skill workers and to provide poor families with an acceptable standard of living.