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Promoting Labour Market Efficiency and Fairness through a Legal Minimum Wage: The Webbs and the Social Cost of Labour

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  • Bruce E. Kaufman

Abstract

Neoclassical economists, using a competitive demand/supply model of labour markets, typically conclude a legislated minimum wage is harmful to economic efficiency and social welfare. The major theoretical counter‐attack by proponents of a minimum wage is to argue that low‐wage labour markets are better modelled as monopsonistic. This article develops and formalizes a second theoretical defence for a legal minimum wage law. This defence rests on the concept of the social cost of labour, as originally popularized by Sidney and Beatrice Webb and then further developed by American institutional economists. This analysis is unique in that it continues to use the competitive demand/supply model but nonetheless demonstrates that a legislated minimum wage often simultaneously increases both economic efficiency and fairness, unlike the neoclassical prediction.

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  • Bruce E. Kaufman, 2009. "Promoting Labour Market Efficiency and Fairness through a Legal Minimum Wage: The Webbs and the Social Cost of Labour," British Journal of Industrial Relations, London School of Economics, vol. 47(2), pages 306-326, June.
    • Handle: RePEc:bla:brjirl:v:47:y:2009:i:2:p:306-326
    DOI: 10.1111/j.1467-8543.2009.00725.x
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    References listed on IDEAS

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    1. Sidney Webb, 1912. "The Economic Theory of a Legal Minimum Wage," Journal of Political Economy, University of Chicago Press, vol. 20(10), pages 973-973.
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    13. Hristos Doucouliagos & T. D. Stanley, 2009. "Publication Selection Bias in Minimum‐Wage Research? A Meta‐Regression Analysis," British Journal of Industrial Relations, London School of Economics, vol. 47(2), pages 406-428, June.
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    16. Bruce E. Kaufman, 2003. "John R. Commons and the Wisconsin School on Industrial Relations Strategy and Policy," ILR Review, Cornell University, ILR School, vol. 57(1), pages 3-30, October.
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    18. Bruce Kaufman, 2008. "The Non-Existence of the Labor Demand/Supply Diagram, and other Theorems of Institutional Economics," Journal of Labor Research, Springer, vol. 29(3), pages 285-299, September.
    19. Vasilev, Aleksandar & Maksumov, Rashid, 2010. "Critical analysis of Chapter 23 of Keynes’s Notes on Mercantilism in The General Theory of Employment, Interest and Money (1936)," EconStor Research Reports 155318, ZBW - Leibniz Information Centre for Economics.
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    Cited by:

    1. Thomas Turner & Michelle O’Sullivan, 2013. "Economic Crisis and the Restructuring of Wage Setting Mechanisms for Vulnerable Workers in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 44(2), pages 197-219.
    2. Marius-Cristian Pana, 2015. "MINIMUM WAGE AND BUSINESS ENVIRONMENT IN ROMANIA: AN INSTITUTIONAL PERSPECTIVE (International Conference "Recent Advances in Economic and Social Research", 13-14 mai 2015, București)," Institute for Economic Forecasting Conference Proceedings 151208, Institute for Economic Forecasting.
    3. Dr. Nickolaos Giovanis, 2019. "“Determining Factors of Minimum Wage in the Member States of the OECDâ€," Sumerianz Journal of Business Management and Marketing, Sumerianz Publication, vol. 2(1), pages 6-14, 01-2019.
    4. Bruce E. Kaufman, 2010. "Institutional Economics and the Minimum Wage: Broadening the Theoretical and Policy Debate," ILR Review, Cornell University, ILR School, vol. 63(3), pages 427-453, April.
    5. Gautié, Jérôme, 2015. "D'un siècle à l'autre, salaire minimum, science économique et débat public aux États-Unis, en France et au Royaume-Uni (1890-2015)," CEPREMAP Working Papers (Docweb) 1518, CEPREMAP.
    6. Dr. Nickolaos Giovanis, 2018. "Determining Factors of Minimum Wage in the Member States of the OECD," Sumerianz Journal of Business Management and Marketing, Sumerianz Publication, vol. 1(4), pages 93-101, 12-2018.
    7. Bruce E. Kaufman, 2013. "Sidney and Beatrice Webb's Institutional Theory of Labor Markets and Wage Determination," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 52(3), pages 765-791, July.

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