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Let me begin by saying I know nothing about economics.

In the past couple of days I've been listening to some lectures by Milton Friedman. They are of non-technical nature. In one of them he makes an argument which I have understood approximately as follows:

Having a minimum wage law is harmful to workers who compete for low paying jobs and are relatively less skillful because it deprives them of their "only weapon" - working for less.

  1. Do minimum wage laws increase unemployment? Is there any information enabling this comparison?
  2. Are there purely economic arguments, or empirical evidence, favoring minimum wage laws? Have they in any sense improved the economy?
Arrow
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1 Answers1

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There is ample evidence that increases in the minimum wage in the magnitudes that we've seen in the last 20-30 years have caused no or very small decreases of low-skilled employment. In that sense, the predictions of competitive labor market models like the one Friedman probably had in mind are clearly wrong.

A classic reference here is Card and Kruger 1993 (http://davidcard.berkeley.edu/papers/njmin-aer.pdf). A more recent contribution is Allegretto et. al. (http://ftp.iza.org/dp7638.pdf). There are many more.

Some recent minimum wage increases have been much bigger than the ones discussed in these papers (for example the 15$ minimum wage in California) and the effects of these increases may be more substantial.

The argument for minimum wages is mostly about redistribution, and modest minimum wages probably achieve this goal.

Tobias
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  • Minimum wages are a nice example of how economics has developed, see this survey of economists' opinion. http://www.igmchicago.org/surveys/15-minimum-wage During Friedman's times this question would not even be open for debate. – Bayesian Jan 25 '17 at 09:13