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The Minimum Wage in the Neoclassical and the Behavioural Labour Market Theory

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  • Dagmar Brožová

Abstract

The question of the minimum wage has been constantly discussed in scientific economic literature. The dominant economic paradigm is neoclassical economics, which must cope with the attacks from modern streams of economic thought. The article analyses the fundamental differences in the approaches of the mainstream neoclassical and modern behavioural approach to labour economics. The comparison of the neoclassical and behavioural interpretation of the minimum wage points to the basic differences in the approach to the minimum wage. Neoclassical economics is founded on the theoretical basis of the competitive market and presents a reserved attitude to the minimum wage. From the position of positive economics, it demonstrates the decline in employment and the rise in unemployment as a consequence of this external intervention into market forces. It is, in essence, considered as inefficient redistribution, which acts as demotivation. Behavioural economics stems from imperfectly competitive labour markets and applies a normative approach: it articulates what the minimum wage should be. This line of reasoning leads to the concept of a "living wage" and a "social wage". The empirical studies support both the neoclassical and the behavioural approach towards labour markets. It would seem suitable to consider markets according to the type of competition and treat them differently regarding impact assessment and eventual minimum wage introduction.

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  • Dagmar Brožová, 2018. "The Minimum Wage in the Neoclassical and the Behavioural Labour Market Theory," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2018(4), pages 30-41.
    • Handle: RePEc:prg:jnlaop:v:2018:y:2018:i:4:id:610:p:30-41
    DOI: 10.18267/j.aop.610
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    More about this item

    Keywords

    neoclassical labour economics; rational choice model; behavioural economics; minimum wage;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General

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