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May 01, 2006

Robert Reich Blog

Robert Reich has a blog. Here is his take on the minimum wage.

Here is mine, actually quoting him.

Here is Chris Dillow’s.

Yes, I have left a lengthy comment there. Be interesting to see if it gets through moderation.

Robert Reich...economist or political shill?

May 1, 2006 in Economics | Permalink


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From some continuing experiences of discussing setting a minimum wage issue with non-economists, the issue is almost invariably regarded as a binary issue of principle with the question of the minimum wage level as a verging-on minor consideration. Hence, questions about whether a minimum wage of, say, £1/hour or £10/hour would have any impacts on employment come as novel perspectives and the discussion shifts quickly then to issues of setting a minimum wage level appropriate to alleviate poverty - apparently regardless of of the consequences for jobs. Traditional trade union concerns over maintaining - or strengthening - pay differentials seem to go into suspension for the duration of the discussion.

However, I am willing to concede a case for setting a minimum wage in rural areas where single employers may have dominant positions in local labour markets and standard economic theory recognises such a case when there a monopolistic or oligopolistic demand function for labour.

Posted by: Bob B | May 1, 2006 12:59:03 PM

I suspect that that characteristic of rural labour markets changed with the car, if not the bike.

Posted by: dearieme | May 1, 2006 2:51:31 PM

As an interesting practical demonstration of the minimum wage thing take a look at South Africa.

In 1994 the ANC got into office after the first universally democratic elections. One of their earliest acts was to introduce minimum wages in most sectors not already covered. There are various minimum wages now that cover nearly all sectors of the economy.

The South African economy has grown at rates far in excess of any western country from the mid 90's. Unfortunately the unemployment rate remains stubbornly high (around 30% is the best estimate).

Now there are several reasons for this - a massive, poorly educated population being a big one. So are massivly intrusive labour "protection" laws and assorted payroll taxes. But, it is clear that employers are loathe to hire people when they can buy machines to expand output.

One area where this had the most direct effect was the one that struck at the real bottom of the economic pile. There is a minimum wage for domestic workers (maids and gardeners). An awful lot got laid off when that little piece of governmental incompetence went through.

The ANC has started to realise this and makes occasional moves to reduce or abolish minimum wages but get beaten down by their COSATU partners. COSATU represents approximately 30% of the workforce (if that)so we find that 21% of the working age population is deprivinng 30% of the chance of work. Where's the justice in that?


Posted by: The Remittance Man | May 1, 2006 3:07:45 PM