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Linking the Minimum Wage to Productivity

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  • Oren M. Levin-Waldman

    (The Jerome Levy Economics Institute)

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    Abstract

    One of the principal problems with the minimum wage is that adjustments to it must be voted on by Congress. Although recent congressional action solves the immediate problem of restoring value to a wage that has otherwise failed to keep pace with inflation it has not removed the issue from the political agenda. Every time Congress acts, it does so amidst debate about the legitimacy of the wage. When Congress does act, it is usually too little and too late. Therefore, it might be preferable to create an automatic mechanism for adjusting the minimum wage that would not only assume the value of a wage floor to society, but be tied to levels of productivity. Such an approach would accomplish two objectives. First, it would be in keeping with the economic argument that an artificial wage floor can lead to greater productivity, rather than to the disemployment effect assumed in traditional economic textbooks. Second, because increases to the wage would be regular and expected, unlike the shocks attendant to sporadic increases. In the end such a plan might not only lead to less political opposition, but to greater efficiency.

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    File URL: http://128.118.178.162/eps/mac/papers/9802/9802015.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series Macroeconomics with number 9802015.

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    Length: 36 pages
    Date of creation: 10 Feb 1998
    Date of revision:
    Handle: RePEc:wpa:wuwpma:9802015

    Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on PostScript; pages: 36; figures: included
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    Web page: http://128.118.178.162

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    1. Dimitri B. Papadimitriou & L. Randall Wray, . "Targeting Inflation, The Effects of Monetary Policy on the CPI and Its Housing Component," Economics Public Policy Brief Archive ppb_27, Levy Economics Institute.
    2. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
    3. Kosters, Marvin & Welch, Finis, 1972. "The Effects of Minimum Wages on the Distribution of Changes in Aggregate Employment," American Economic Review, American Economic Association, vol. 62(3), pages 323-32, June.
    4. Sidney Webb, 1912. "The Economic Theory of a Legal Minimum Wage," Journal of Political Economy, University of Chicago Press, vol. 20, pages 973.
    5. David Neumark & William Wascher, 1992. "Employment effects of minimum and subminimum wages: Panel data on state minimum wage laws," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 46(1), pages 55-81, October.
    6. Richard V. Burkhauser & Kenneth A. Couch & David C. Wittenburg, 1996. "Who gets what from minimum wage hikes: A re-estimation of Card and Krueger's distributional analysis in "Myth and Measurement: The New Economics of the Minimum Wage."," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 49(3), pages 547-552, April.
    7. Alida Castillo Freeman & Richard B. Freeman, 1991. "Minimum Wages in Puerto Rico: Textbook Case of a Wage Floor?," NBER Working Papers 3759, National Bureau of Economic Research, Inc.
    8. Brown, Charles, 1988. "Minimum Wage Laws: Are They Overrated?," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 133-45, Summer.
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