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Institutional Economics and the Minimum Wage: Broadening the Theoretical and Policy Debate

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  • Bruce E. Kaufman

Abstract

Debate among labor economists on the pros and cons of a minimum wage law has come to focus on whether labor markets are competitive or monopsonistic. Using principles and concepts of institutional economics, the author argues that this perspective on minimum wages is too narrow. In particular, he uses institutional theory to develop four theoretical rationales for minimum wage legislation: setting a floor on wages to offset imperfect competition and inequality of bargaining power; promote macroeconomic stabilization and full employment; contribute to long-term efficiency and growth; and incorporate labor market externalities and social costs of labor. One revisionist implication is that a minimum wage under plausible conditions may increase economic efficiency even in a purely competitive labor market.

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Bibliographic Info

Article provided by ILR Review, Cornell University, ILR School in its journal ILR Review.

Volume (Year): 63 (2010)
Issue (Month): 3 (April)
Pages: 427-453

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Handle: RePEc:ilr:articl:v:63:y:2010:i:3:p:427-453

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Cited by:
  1. David R. Howell & Bert M. Azizoglu & Anna Okatenko, 2012. "Confronting Low Pay: Minimum Wage Policy and Employment in the U.S. and France," Working Papers wp286_revised, Political Economy Research Institute, University of Massachusetts at Amherst.
  2. John Schmitt, 2013. "Why Does the Minimum Wage Have No Discernible Effect on Employment?," CEPR Reports and Issue Briefs 2013-04, Center for Economic and Policy Research (CEPR).
  3. Hirsch, Barry & Kaufman, Bruce E. & Zelenska, Tetyana, 2011. "Minimum Wage Channels of Adjustment," IZA Discussion Papers 6132, Institute for the Study of Labor (IZA).
  4. Cosmin ENACHE, 2012. "Unemployment Benefit, Minimum Wage And Average Salary Earnings In Romania," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 10, pages 85-96, December.
  5. Juan Pedro Ronconi, 2013. "Union Negotiation and Wage Inequality in Argentina: An Empirical Analysis of Recent Trends," CEDLAS, Working Papers 0145, CEDLAS, Universidad Nacional de La Plata.

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