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The Economics of Wage Floors

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  • Jacob Mincer
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    Abstract

    This paper contains a theoretical analysis of and summaries of empirical information on consequences of wage floors in the labor market imposed by minimum wages and by labor unions. Excess supplies are rationed in part probabilistically ("first come, first served"), and in part systematically -- by raising hiring standards, or by discrimination and nepotism. Effects on employment, unemployment, and labor force participation, and on wage differentials between the II covered'' and the free sector follow. Empirical information on these effects is cited in the minimum wage case, but only wage differentials are analyzed in the union context. Other consequences outlined here are: lengthening of school attendance, reduction of hours of work, substitution of paid out wages for fringes in the minimum wage case. However, union pressure on fringes is greater than on wages. This strategy produces larger income and greater job security for union members. The minimum wage reduces opportunities for job training and consequent wage growth. Quits initially decline as wages are pushed up, but turnover is likely to increase as the training content of jobs is reduced. Union wage and fringe advantages reduce quits significantly. However, training as well as wage growth are reduced.

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    File URL: http://www.nber.org/papers/w0804.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0804.

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    Date of creation: Nov 1981
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    Publication status: published as Mincer, Jacob. "The Economics of Wage Floors," Research in Labor Economics , Vol. 6, 1984.
    Handle: RePEc:nbr:nberwo:0804

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    References

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    1. Wessels, Walter J, 1980. "The Effect of Minimum Wages in the Presence of Fringe Benefits: An Expanded Model," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 293-313, April.
    2. Mellow, Wesley S, 1981. "Unionism and Wages: A Longitudinal Analysis," The Review of Economics and Statistics, MIT Press, vol. 63(1), pages 43-52, February.
    3. Michael L. Wachter & Choongsoo Kim, 1979. "Time Series Changes in Youth Joblessness," NBER Working Papers 0384, National Bureau of Economic Research, Inc.
    4. J. Wilson Mixon & Jr, 1978. "The minimum wage and voluntary labor mobility," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 32(1), pages 67-73, October.
    5. Edward M. Gramlich, 1976. "Impact of Minimum Wages on Other Wages, Employment, and Family Incomes," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(2), pages 409-462.
    6. Duncan, Greg J & Stafford, Frank P, 1980. "Do Union Members Receive Compensating Wage Differentials?," American Economic Review, American Economic Association, vol. 70(3), pages 355-71, June.
    7. Rosen, Sherwin, 1969. "Trade Union Power, Threat Effects and the Extent of Organization," Review of Economic Studies, Wiley Blackwell, vol. 36(106), pages 185-96, April.
    8. Richard B. Freeman, 1978. "The Effect of Trade Unionism on Fringe Benefits," NBER Working Papers 0292, National Bureau of Economic Research, Inc.
    9. Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S87-104, August.
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    Cited by:
    1. Charles Brown, 1985. "Standard-Rate Wage Setting, Labor Quality, and Unions," NBER Working Papers 1717, National Bureau of Economic Research, Inc.

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