1.24Economist Summary

Title:

The argument in the floor
Evidence is mounting that moderate minimum wages can do more good than harm

Volume:

Nov 24th 2012 | from the print edition

Summary:

Content restructuring:

The standard of minimum-wage has a long history. Thanks to its importance, which relates to employment level and inflation, minimum-wage law burst out an explosive debate among so many famous economists and analysts.

Some of economists tend to oppose minimum-wage law because they believe that it may reduce the employment. The purpose of it is helping those low-skilled workers but actually the end runs in the opposite direction. Milton Friedman is one of delegates of this theory. He called the law is a form of discrimination. According to standard models of competitive markets, anything that artificially raises the price of labor will curb demand for it, and the first to lose their jobs will be the least-skilled workers.

Actually the some studies just matches Friedman’s mind. In 1990, most studies found that higher minimum wages cost jobs, particularly among young workers.

On the other hand, two economists David Card and Alan Krueger found that higher minimum wages actually increase employment. However, critics such as David Neumark and William Wascher argued that over time higher minimum wages hurt jobs. Until recently, the in America’s academics still do not agree on the employment effects. All of economists tend to do researches in fast food restaurant so that they can get first-hand figures.

Britain’s experience, on the other hand, shows that Britain’s minimum wage has done little or no harm. Even in Britain the standard is 46%, a little higher than America’s.

New evidences leave economists with more unanswered questions. What exactly is going on in labour markets if minimum wages do not hurt employment but reduce wage gaps? Are firms cutting costs by squeezing wages elsewhere? Are they improving the productivity of the lowest-wage workers?

Although minimum wages caused problems and arguments, the states around the world won’t cancel it.

Comment:

America’s principle of liberalism leads a heated debate in almost every academic field. Different economists maintain their own ideas about the standard of wages. The principle of minimum wages is essential to the goods market and the currency market. As far as I am concerned, the minimum wages must be a regular law for a country. Only with enough money, consumers can stimulate consumption by purchasing goods. Without, minimum wages, workers’ income are not insured. A large group of low-income people are not able to buy what they produced. For example, the Great Depression in 1929-1933 shake the U.S. even the world. One or reasons is that nearly all of revenue is used to enlarge scale of production, but not to pay for workers. The fact that producers are not afford to goods make the revenue short. Therefore, the manufacturers had to cut positions which led to high unemployment rate.

Although the fact sometimes differs from the theory, there is no doubt that responsible governments should take measures to provide insurance on worker’s benefits and rights. The purpose of manufacturing is consuming. No matter high-income workers or low-skilled workers are supposed to be paid equally. After all, all of them are potential purchasing power of the state.

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