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


  • Bruce E. Kaufman


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.

Suggested Citation

  • 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.
  • Handle: RePEc:sae:ilrrev:v:63:y:2010:i:3:p:427-453

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    Cited by:

    1. Brian Fabo & Sharon Sarah Belli, 2017. "(Un)beliveable wages? An analysis of minimum wage policies in Europe from a living wage perspective," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 6(1), pages 1-11, December.
    2. Janine Berg, 2015. "Labour market institutions: the building blocks of just societies," Chapters, in: Janine Berg (ed.), Labour Markets, Institutions and Inequality, chapter 1, pages 1-36, Edward Elgar Publishing.
    3. Orley C. Ashenfelter & Štěpán Jurajda, 2021. "Wages, Minimum Wages, and Price Pass-Through: The Case of McDonald’s Restaurants," NBER Working Papers 28506, National Bureau of Economic Research, Inc.
    4. Katalin Bodnár & Ludmila Fadejeva & Stefania Iordache & Liina Malk & Desislava Paskaleva & Jurga Pesliakaitė & Nataša Todorović Jemec & Peter Tóth & Robert Wyszyński, 2018. "How do firms adjust to rises in the minimum wage? Survey evidence from Central and Eastern Europe," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-30, December.
    5. Bruce Kaufman, 2016. "Adam Smith’s Economics and the Modern Minimum Wage Debate:The Large Distance Separating Kirkcaldy from Chicago," Journal of Labor Research, Springer, vol. 37(1), pages 29-52, March.
    6. Rizov, Marian & Croucher, Richard & Lange, Thomas, 2016. "The UK national minimum wage's impact on productivity," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 819-835.
    7. Bernhard Schütz, 2018. "Employment and the minimum wage: A pluralist approach," Economics working papers 2018-07, Department of Economics, Johannes Kepler University Linz, Austria.
    8. Altman, Morris, 2014. "Insights from behavioral economics on how labor markets work," Working Paper Series 3466, Victoria University of Wellington, School of Economics and Finance.
    9. Muriel Périsse & Clément Séhier, 2019. "Analysing wages and labour institutions in China: An unfinished transition," The Economic and Labour Relations Review, , vol. 30(3), pages 400-421, September.
    10. Barry T. Hirsch & Bruce E. Kaufman & Tetyana Zelenska, 2015. "Minimum Wage Channels of Adjustment," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 54(2), pages 199-239, April.
    11. Riley, Rebecca & Rosazza Bondibene, Chiara, 2017. "Raising the standard: Minimum wages and firm productivity," Labour Economics, Elsevier, vol. 44(C), pages 27-50.
    12. 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.
    13. 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.
    14. David R. Howell & Bert M. Azizoglu & Anna Okatenko, 2012. "Confronting Low Pay: Minimum Wage Policy and Employment in the U.S. and FranceÂ," SCEPA working paper series. 2012-5, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    15. Jose Caraballo†Cueto, 2016. "Is there a minimum wage biting in Puerto Rico? Updating the debate," Industrial Relations Journal, Wiley Blackwell, vol. 47(5-6), pages 513-529, November.
    16. Florin Vadean & Stephen Allan, 2021. "The Effects of Minimum Wage Policy on the Long‐Term Care Sector in England," British Journal of Industrial Relations, London School of Economics, vol. 59(2), pages 307-334, June.
    17. Ioannis A. Katselidis, 2019. "Institutions, Policy and the Labour Market: The Contribution of the Old Institutional Economics," Economic Thought, World Economics Association, vol. 8, pages 13-30, December.
    18. 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.
    19. 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.

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