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10 Cards in this Set
- Front
- Back
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MW order of topics |
- UK - Who benefited - Theoretical impact - Actual impact - Card and Kreuger (1994) - Stewart (2004) - Other poss explanations - Prices, productivity, profits - Other effects |
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UK |
- Abolished wage councils in 1993 so until 1999 only OECD country to not have MW - 1999 NMW at two rates, then in 2004 another |
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Why lower for younger? |
- Lower ability/ experience so deserve - Higher Ue rate and leaves the biggest scar so want to encourage their employment - Most live with parents so are less needy |
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Who benefited? |
- Disproportionately females and part time workers - Low skilled (so likely low y) - Private sector (no previous protection) |
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Theoretical impact |
- Should increase Ue through: people losing their jobs (movement along D curve) and more people entering the labour market as attracted by higher wages -Imposed to help low skilled but these are the ones who are most vulnerable to lay offs - Only those who are kept on benefit |
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Actual Impact |
UK employment actually rose Card and Krueger (1994) - Min wage impact on fast foo industry empl - DID compare the before and after employment of workers in fast food industries in New Jersey (where increased the MW) and the neighbouring state of Pennsylvania (who didn't) - Found a 0.48 increase in the wage lead to an 2.7 person increase in employment - Potential problems: discouraged new openings, econs of scale sheltered, fixed production technology - Checked by: controlling for restaurant closures, using other NJ firms as comp group, and controlling for non-wage benefits Stewart (2004) - UK empl probability bw affected firms and firms that just about MW - Found no negative impact on empl rate |
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Other possible explanations |
- Set too low, non-compliance: no because pay per person did increase - Offsets - so overall cost to firm the same - Adjustment of hours rather than workers - Changs in other econ variables - prices, productivity and profits |
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Productivity, prices and profits |
Productivity - Researchers don't find relationship - The reason workers aren't getting layed off is not because there has been an increase in productivity Prices: - Small increase in the price of MW produced goods Profits: - DID comp of profits of before and after of low and high wage firms show profit margins decreased by 7-11% - PAPER: UK 1999 NMW DID bw low wage firms and control group of firms "less likely" to be affected. Stat signif NEGATIVE rel so shows "at risk" firms profit margins were "sqeezed" - but not clear treatment group "likely and possibly" |
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Results consistent with dynamic monopsony |
MC = MW up until E MC perfectly elastic up until E then upward sloping (higher w leads to increase in supply Profit maxing firm still sets MC=MB(VMP) so employs more workers even though this will reduce profits because it is the best it can do - Both Empl and Wages have increased - Govt could even set MW equal to W* to eliminate exploitation |
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Other effects (wage dist and income dist) |
Wage Dist - Does the dist just shift to the right and not change shape - no evid for this - 1/3 affected firms also increased the wages of those just above the MW but of these only 3/4 increased it by more than $5 - Largest increase in wage for those at bottom Income Dist - Doesn't alleviate poverty because receipients are not ones in poverty - Poverty cause by lack of work and so the poorest HH are not benefiting because they are not in work - Recipients are not necessarily the poorest because they have other earners - not valid argument because 64% of gainers were from the bottom two income rankings |
