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


  • Bruce E. Kaufman


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. Copyright (c) Blackwell Publishing Ltd/London School of Economics 2009.

Suggested Citation

  • 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

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    References listed on IDEAS

    1. Sidney Webb, 1912. "The Economic Theory of a Legal Minimum Wage," Journal of Political Economy, University of Chicago Press, vol. 20, pages 973-973.
    2. David Neumark & William Wascher, 2006. "Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research," NBER Working Papers 12663, National Bureau of Economic Research, Inc.
    3. Deakin, Simon & Wilkinson, Frank, 2005. "The Law of the Labour Market: Industrialization, Employment, and Legal Evolution," OUP Catalogue, Oxford University Press, number 9780198152811, June.
    4. Marilyn Power, 1999. "Parasitic-Industries Analysis and Arguments for a Living Wage for Women in the Early Twentieth-Century United States," Feminist Economics, Taylor & Francis Journals, vol. 5(1), pages 61-78.
    5. Steven Kates, 1998. "Say’s Law and the Keynesian Revolution," Books, Edward Elgar Publishing, number 1406.
    6. Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 87-104, August.
    7. 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.
    8. Prasch, Robert E., 1998. "American Economists and Minimum Wage Legislation During the Progressive Era: 1912–1923," Journal of the History of Economic Thought, Cambridge University Press, vol. 20(02), pages 161-175, June.
    9. Neumark, David & Wascher, William, 2007. "Minimum Wages, the Earned Income Tax Credit, and Employment: Evidence from the Post-Welfare Reform Era," IZA Discussion Papers 2610, Institute for the Study of Labor (IZA).
    10. 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.
    11. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 721-754, Sept./Oct.
    12. repec:mes:jeciss:v:27:y:1993:i:1:p:171-188 is not listed on IDEAS
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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.

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