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Minimum wages in an automating economy

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  • Eckardt, Marcel Steffen

Abstract

We explore the suitability of the minimum wage as a policy instrument for reducing emerging income inequality created by new technologies. For this, we implement a binding minimum wage in a task‐based framework, in which tasks are conducted by machines, low‐skill, and high‐skill workers. In this framework, an increasing minimum wage reduces the inequality between the low‐skill wage and the other factor prices, whereas the share of income of low‐skill workers in the national income is nonincreasing. Then, we analyze the impact of an automating economy along the extensive and intensive margins. In a setting with a minimum wage, it can be shown that automation at the extensive margin and the creation of new, labor‐intensive tasks do not increase the aggregate output in general, as the displacement of low‐skill workers counteracts the positive effects of cost‐savings. Finally, we highlight a potential trade‐off between less inequality of the factor prices and greater inequality of the income distribution when a minimum wage is introduced into an automating economy.

Suggested Citation

  • Eckardt, Marcel Steffen, 2022. "Minimum wages in an automating economy," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 133357, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    • Handle: RePEc:dar:wpaper:133357
    DOI: 10.1111/jpet.12528
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/133357/
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    Cited by:

    1. Taeyoung Doh & Kyoo il Kim & Sungil Kim & Hwanoong Lee & Kyungho Song, 2022. "The Economic Effects of a Rapid Increase in the Minimum Wage: Evidence from South Korea Experiments," Research Working Paper RWP 22-13, Federal Reserve Bank of Kansas City.
    2. Oscar Iván Ávila-Montealegre & Anderson Grajales-Olarte & Juan J. Ospina-Tejeiro & Mario A. Ramos-Veloza, 2023. "Minimum Wage and Macroeconomic Adjustment: Insights from a Small Open, Emerging, Economy with Formal and Informal Labor," Borradores de Economia 1264, Banco de la Republica de Colombia.

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