Christina Romer presents a most coherent piece in the NYT that explains the effects of a minimum wage in terms of distribution effects. Apart from showing that the quest to improve income for poorer workers may be valid, the article shows that the distributional effects makes the overall effects more complicated than is immediately apparent. To start with, it is clear that the enhancement of wages may not all be appropriated by the poorest workers because some of the raise will be taken by younger workers who are residents of higher income households. In effect, as argued, raising the minimum wage in the US would also result in gains for those who work in minimum wage jobs but are not necessarily the most indigent workers in the US.
Equally profound is that the income gains may be real but that because poorer workers do not work on a full time basis, the policy change will not result in substantial economic effect relative to the US economy. Added to this point is that the consumption patterns of the lower income individuals suggest that most of that gain in establishments that employ the very individuals who are on a minimum wage. Understandably therefore, the price rise based on higher wages paid is absorbed disproportionately by this increase. Christina alludes to studies that show that a minimum wage policy may have a negligible effect on overall employment but this possibly compensated for by the gains in productivity caused by the lower labour turnover.
In all, the analysis shows that the policy intent of the minimum wage policy is clear and perhaps morally defensible but the effect of instituting it is not necessarily positive for the people it is expected to assist. To my mind, the author states convincingly that by raising the minimum wage, the administration has left on the table more feasible alternatives.
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