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Do minimum wages stimulate productivity and growth?

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  • Joseph J. Sabia

    (San Diego State University, USA, and IZA, Germany)

Abstract

Proponents of minimum wage increases have argued that such hikes can serve as an engine of economic growth and assist low-skilled individuals during downturns in the business cycle. However, a review of the literature provides little empirical support for these claims. Minimum wage increases redistribute gross domestic product away from lower-skilled industries and toward higher-skilled industries and are largely ineffective in assisting the poor during both peaks and troughs in the business cycle. Minimum wage-induced reductions in employment are found to be larger during economic recessions.

Suggested Citation

  • Joseph J. Sabia, 2015. "Do minimum wages stimulate productivity and growth?," IZA World of Labor, Institute of Labor Economics (IZA), pages 221-221, December.
    • Handle: RePEc:iza:izawol:journl:y:2015:n:221
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    References listed on IDEAS

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    1. Sylvia A. Allegretto & Arindrajit Dube & Michael Reich, 2011. "Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 50(2), pages 205-240, April.
    2. Joseph Sabia, 2014. "The Effects of Minimum Wages over the Business Cycle," Journal of Labor Research, Springer, vol. 35(3), pages 227-245, September.
    3. Burkhauser, Richard V., 2014. "Why Minimum Wage Increases Are a Poor Way to Help the Working Poor," IZA Policy Papers 86, Institute of Labor Economics (IZA).
    4. Cahuc, Pierre & Michel, Philippe, 1996. "Minimum wage unemployment and growth," European Economic Review, Elsevier, vol. 40(7), pages 1463-1482, August.
    5. Askenazy, Philippe, 2003. "Minimum wage, exports and growth," European Economic Review, Elsevier, vol. 47(1), pages 147-164, February.
    6. Andrea Bassanini & Danielle Venn, 2008. "The Impact of Labour Market Policies on Productivity in OECD Countries," International Productivity Monitor, Centre for the Study of Living Standards, vol. 17, pages 3-15, Fall.
    7. Addison, John T. & Blackburn, McKinley L. & Cotti, Chad D., 2009. "Do minimum wages raise employment? Evidence from the U.S. retail-trade sector," Labour Economics, Elsevier, vol. 16(4), pages 397-408, August.
    8. Joseph J. Sabia, 2015. "Minimum Wages And Gross Domestic Product," Contemporary Economic Policy, Western Economic Association International, vol. 33(4), pages 587-605, October.
    9. Thomas MaCurdy, 2015. "How Effective Is the Minimum Wage at Supporting the Poor?," Journal of Political Economy, University of Chicago Press, vol. 123(2), pages 497-545.
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    Citations

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    Cited by:

    1. David Maré & Dean Hyslop, 2021. "Minimum Wages in New Zealand: Policy and practice in the 21st century," Working Papers 21_03, Motu Economic and Public Policy Research.
    2. Fossati, Sebastian & Marchand, Joseph, 2020. "First to $15: Alberta's Minimum Wage Policy on Employment by Wages, Ages, and Places," Working Papers 2020-15, University of Alberta, Department of Economics, revised 27 Jul 2023.
    3. Li, Houjian & Tang, Mengqian & Cao, Andi & Guo, Lili, 2024. "How to reduce firm pollution discharges: Does political leaders' gender matter?," Technological Forecasting and Social Change, Elsevier, vol. 204(C).
    4. Romain Duval & Prakash Loungani, 2021. "Designing Labor Market Institutions in Emerging Market and Developing Economies: A Review of Evidence and IMF Policy Advice," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(1), pages 31-83, March.
    5. Tomás Gómez Rodríguez & Humberto Ríos Bolívar & Ali Aali Bujari, 2018. "Salario eficiente y crecimiento económico para el caso de América Latina. (Efficient wages and Economic Growth in Latin America)," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 213-235, October.
    6. Medrano-Adán, Luis & Salas-Fumás, Vicente, 2023. "Do minimum wages deliver what they promise? Effects of minimum wage on employment, output, and income inequality from occupational choice theory," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 366-383.
    7. Dallin Overstreet, 2019. "The Effect of Minimum Wage on Per Capita Income in Arizona: Empirical Analysis," Poverty & Public Policy, John Wiley & Sons, vol. 11(1-2), pages 156-168, July.
    8. Bayari, Celal, 2018. "Economy and Market in China: The State, Wage Labour and the Construction of the ‘China Price’," MPRA Paper 100900, University Library of Munich, Germany, revised 04 Mar 2018.

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    More about this item

    Keywords

    minimum wages; business cycle; productivity; poverty;
    All these keywords.

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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