a minimum wage can be welfare improving and employment enhancing abstract we examine whether minimum wages can fulfill a useful role as part of an optimal tax transfer scheme the government cannot observe household abilities only their incomes and is constrained to ensure that those working are at least as well off as those not working a minimum wage combined with the institutional features of typical welfare systems allows the incentive constraint to be severed at the ability level associated with the minimum wage if such a scheme can be enforced the government can increase the amount of redistribution from those working to those not working and possibly lower the number of unemployed

the consequences of minimum wage laws some new theoretical ideas economists generally agree that the effect of a binding minimum wage law is to move firms backward along the demand curve for low skill workers however this prediction of worker displacement depends critically on the assumption that the productivity of firms labor is not dependent on the wage in this paper we show that in a conventional efficiency wage model a minimum wage may increase the level of employment in low wage jobs the formal logic of our model is similar to the case of labor demand under monopsony but arises in a model with a large number of employers

evidence on the impact of minimum wage laws in an informal sector domestic workers in south africa what happens when a previously uncovered labor market is regulated we exploit the introduction of a minimum wage in south africa and variation in the intensity of this law to identify increases in wages for domestic workers and no statistically significant effects on employment on the intensive or extensive margins these large partial responses to the law are somewhat surprising given the lack of monitoring and enforcement in this informal sector we interpret these changes as evidence that strong external sanctions are not necessary for new labor legislation to have a significant impact on informal sectors of developing countries at least in the short run

pareto improving minimum wage laws by increasing the expected wage in low skill jobs a minimum wage law can reduce the incentive for low skill workers to imitate high skill workers in the signalling process the gain from reduced investment in the signal can more than offset the loss from unemployment among low skill workers so that total output increases moreover with an appropriate poll tax on workers to compensate owners of capital the law can make all workers and owners of capital better off

using regional variation in wages to measure the effects of the federal minimum wage the imposition of a national minimum wage standard provides a natural experiment in which the treatment effect varies across states depending on the fraction of workers initially earning less than the new minimum the author exploits this fact to evaluate the effect of the april 1990 increase in the federal minimum wage on teenagers wages employment and school enrollment comparisons of grouped and individual state data confirm that the rise in the minimum wage increased teenagers wages there is no evidence of corresponding losses in teenage employment or changes in teenage school enrollment

employment effects of minimum and subminimum wages panel data on state minimum wage laws using panel data on state minimum wage laws and economic conditions for the years 1973 89 the authors reevaluate existing evidence on the effects of a minimum wage on employment their estimates indicate that a 10 increase in the minimum wage causes a decline of 1 2 in employment among teenagers and a decline of 1 5 2 in employment for young adults similar to the ranges suggested by earlier time series studies the authors also find evidence that youth subminimum wage provisions enacted by state legislatures moderate the disemployment effects of minimum wages on teenagers

willingness to pay for publicly financed health care how should we use the numbers this paper addresses the question of how willingness to pay wtp values in health care evaluation can be used by policy makers the way in which wtp values are used depends on from whom values are elicited and whether the good concerned is privately financed or publicly financed through taxation thus four possible uses of wtp values are identified the focus is on the two uses which arise in the publiclyfinanced situation conventional use of wtp values where the decision as to whether or not to provide a service depends upon whether or not wtp values are greater than total cost applies only in the privately financed and not publiclyfinanced situations the situations with publicly financed goods are more complex the use of wtp values for publicly financed goods is justified and illustrated

job queues and wages this paper uses job applications data to investigate the relationship between job queues and wage differentials the main finding is that openings for jobs that pay the minimum wage attract more job applicants than jobs that pay either slightly more or slightly less than the minimum wage this spike in the job application rate distribution suggests that ex ante rents generated for employees by an above market level minimum wage are not completely dissipated by reductions in nonwage benefits in addition we find that highly unionized firms large firms and firms in high wage industries tend to receive relatively many job applicants for openings

evaluating the minimum wage exemption of the long term unemployed in germany the authors evaluate the exemption of long term unemployed job seekers from germany s national minimum wage using linked survey and administrative micro data they rely on a regression discontinui

are wages too low empirical implications of efficiency wage models firms may pay efficiency wages to enhance productivity the conventional presumption is that efficiency wages are inefficiently high because they lead to unemployment that is also inefficiently high government policies that lower wages raise output using a simple and general efficiency wage model this paper finds a necessary and sufficient condition for the opposite conclusion if the condition holds wages are inefficiently low leading to productivity that is also inefficiently low it is the high wage policies that raise output even if they also lower employment published empirical results support the condition no evidence is found for the conventional presumption

product market evidence on the employment effects of the minimum wage we infer the employment response to a minimum wage change by calibrating a model of employment for the restaurant industry whereas perfect competition implies that employment falls and prices rise after a minimum wage increase the monopsony model potentially implies the opposite we show that estimated price responses are consistent with the competitive model we place fairly tight bounds on the employment response with the most plausible parameter values suggesting that a 10 increase in the minimum wage lowers low skill employment by 2 4 and total restaurant employment by 1 3

the effect of the minimum wage on the fast food industry using a longitudinal survey of fast food restaurants in texas the authors examine the impact of recent increases in the federal minimum wage on a low wage labor market less than 5 of fast food restaurants were using the new youth subminimum wage in july august 1991 even though the vast majority paid a starting wage below the new hourly minimum wage immediately before it became effective although some restaurants increased wages beyond the level needed to comply with higher minimum wages in both 1990 and 1991 those federal minimum wage increases greatly compressed the distribution of starting wages in the texas fast food industry two findings at variance with conventional predictions are that 1 employment increased more in those firms likely to have been most affected by the 1991 minimum wage increase than in other firms and 2 price changes were unrelated to mandated wage changes

a theory of dual labor markets with application to industrial policy discrimination and keynesian unemployment this paper develops a model of dual labor markets based on employers need to motivate workers in order to elicit effort from their workers employers may find it optimal to pay more than the going wage this changes fundamentally the character of labor markets the model is applied to a wide range of labor market phenomena it provides a coherent framework for understanding the claims of industrial policy advocates it also can provide the basis for a theory of occupational segregation and discrimination that will not be eroded by market forces finally the model provides the basis for a theory of involuntary unemployment

toward a consumer economy in china implications of changing wage policies for u s cotton exports the effect of a chinese minimum wage increase on china s textile market as well as on the world cotton market is evaluated based on a nonlinear quadratic almost ideal demand system nqaids model of china s textile demand the results suggest that the income elasticity for textiles is around 0 6 in china and that apparel is less price responsive than home textiles and other textile products simulation results suggest that a minimum wage increase would raise chinese domestic textile consumption and lower chinese textile exports most of the decline in textile exports by china is offset by expansion in other countries domestic textile production and results in a slight increase in world cotton mill utilization and higher clothing prices

efficiency wages deferred payments and direct incentives in agriculture empirical evidence from agricultural labor markets is consistent with efficiency wage theory and inconsistent with several alternative explanations according to this theory the higher wage or deferred payment benefits that direct hire growers pay relative to that of farm labor contractors is an efficiency wage growers use this extra compensation to lower their monitoring expenses and reduce shirking by workers copyright 2002 oxford university press

the intergenerational transmission of education and equality of educational opportunity in east and west germany socialist societies often emphasized the abolition of traditional social classes to achieve this objective educational opportunities were at times actively managed and allocated to children of less educated parents what happened to these patterns after the demise of socialist rule in eastern europe we study the development of educational mobility after the fall of the iron curtain in east germany and compare the relevance of parental educational background for secondary schooling in east and west germany based on the data from the german mikrozensus we find that educational mobility is lower in east than in west germany and that it has been falling in east germany after unification while the educational advantage of girls declined over time having many siblings presents a more substantial disadvantage in east than in west germany

workers as creditors performance bonds and efficiency wages from the standpoint of economic theory the difficulty in regulating workers performance distinguishes labor markets from commodity markets commodities do not respond to incentives workers in contrast can quit steal be hung over refuse to cooperate with other workers or generally work at low effort levels since direct monitoring is often costly and unreliable it may not be the profit maximizing solution to this problem economists have discussed various schemes to make productive behavior incentive compatible for workers the most frequently discussed schemes fall into two broad categories efficiency wages and deferred compensation or bonding schemes these schemes have been suggested as explanations for a wide variety of labormarket features that appear anomalous from the conventional supply and demand perspective efficiency wage models can generate equilibria in which there is involuntary unemployment and in which identical workers are paid different wages in jobs that are otherwise equally attractive george a akerlof and janet l yellen 1985 have argued that they can provide an important component of a model of business cycles deferred compensation schemes have been proposed as explanations for upward sloping age earnings profiles mandatory retirement pensions and hierarchical tournament promotion structures 2 because bonding is costless to firms efficiency wage and bonding strategies are often viewed as mutually incompatible profit maximizing firms should offer efficiency wages only in situations where bonding is impossible one widely held view argues that in labor markets where agency issues arise these problems are effectively solved by various bonding arrangements and moreover that this observation helps to explain otherwise peculiar features of some labor markets as mentioned above it follows that efficiency wages do not generally exist proponents of efficiency wage theory argue that there is considerable evidence of widespread agency problems e g large expenditures by many firms on monitoring and that there are barriers to the use of bonds notably moral hazard on the part of firms or legal constraints efficiency wages cannot therefore be ruled out a priori as an equilibrium solution to these agency problems 3 in this paper we study these issues surrounding efficient worker compensation in a framework that allows heterogeneity among firms and integrates the financial and

minimum wage legislation in a dual labor market the paper studies the equilibrium effects of minimum wage legislation in an economy with coexisting primary and secondary labor markets owing to difficulties in monitoring relative wages and the threat of job loss play a functional role in eliciting effort from primary sector workers minimum wage laws hence affect the primary wage and employment level even if the law only binds in the secondary labor market furthermore interaction between the two sectors can also alter the secondary outcome relative to the standard analysis and has implications for participation decisions and for the level of unemployment

a pareto improving minimum wage this paper shows that a graduated minimum wage in contrast to a constant minimum wage can provide a strict pareto improvement over what can be achieved with an optimal income tax the reason is that a graduated minimum wage requires high productivity workers to work more to earn the same income as low productivity workers which makes it more difficult for the former to mimic the latter in effect a graduated minimum wage allows the low productivity workers to benefit from second degree price discrimination which increases their income

profit sharing risk sharing and firm size implications of efficiency wages by taking account of output fluctuations this paper constructs a synthesis of profit sharing and efficiency wage models to highlight the role of the risk attitudes of the firm and its employees we show contrary to the traditional efficiency wage theory that in a profit sharing economy unemployment is no longer a necessary device to induce work effort and consequently the labor market equilibrium may be characterized by full employment such a result is more likely to be true when the economy is characterized by small sized firms in addition we also provide a preliminary sketch of the situations in which the firm chooses a profit sharing program or a fixed wage one and discuss how a firm determines its pay parameters and employment in response to output fluctuations

comment on david neumark and william wascher employment effects of minimum and subminimum wages panel data on state minimum wage laws in their article published in the minimum wage research symposium in the october 1992 issue of this journal industrial and laborrelations review volume 45 number 1 pp 55 81 david neumark and william wascher claim to find empirical support for three propositions 1 a higher minimum wage leads to a lower teenage employmentpopulation rate 2 the effect of the minimum wage on employment can be seen within a year but becomes stronger after two years and 3 in states with legal subminimum wages a significant fraction of teenage employees are paid a subminimum wage and the availability of a subminimum wage blunts the disemployment effect of the minimum wage the same symposium contains three papers by us that present empirical evidence suggesting conclusions opposite those of neumark and wascher 1 since neumark and