Wednesday, 6 April 2016

Do minimum wages stimulate productivity and growth?

This question is asked in a new paper (pdf) under that title by Joseph J. Sabia (San Diego State University, USA, and IZA, Germany).

The basic finding from the paper is that minimum wage increases fail to stimulate growth and can have a negative impact on vulnerable workers during recessions.

The Pros and Cons of minimum wages are outlined as,

The author's main message is
Empirical evidence provides little support for claims that higher minimum wages will: (i) serve as an engine of economic growth by redistributing income to workers with a relatively high marginal propensity to consume; or (ii) alleviate poverty during economic downturns. Therefore, policymakers wishing to aid low-skilled workers during recessions, or to spur economic growth, should not look to the minimum wage as a policy solution. Rather, means-tested, pro-work cash assistance programs and negative income tax schemes can deliver income to the working poor far more efficiently.

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