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Confronting Low Pay: Minimum Wage Policy and Employment in the U.S. and France

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Abstract

Nearly one-third of all American workers are paid very low wages, the highest rate among wealthy nations. An incidence of low pay at this level has obvious implications for the current standard of living for a substantial share of American families. But of particular concern are the implications for the future: the low pay rate has risen precipitously for young male workers with each economic downturn since the late 1970s. In stark contrast, over the last three decades France has adopted a minimum wage policy designed to eliminate low pay, and it has worked: the low-wage share has dropped to just 10 percent. But does the French evidence confirm the conventional prediction that a minimum wage high enough to substantially reduce the incidence of low pay will also eliminate large numbers of jobs for young, less-educated workers? We find no support for this view in the aggregate data. Despite the large and growing gap in the value of the US and French minimum wage since the mid-1990s, French unemployment and employment rates show stability or improvement as well as strong convergence to U.S. levels. Unemployment-to-population rates for US and French 15-24 year olds have closely tracked one another since the mid-1990s. At the same time, the US and French shares of the employed with a wage above the low-wage threshold and not working involuntarily part-time show a steady and substantial divergence in France’s favor, and this appears most dramatically for young less educated workers. France has shown that a rising minimum wage can all but eliminate low paid work without worsening employment opportunities for vulnerable workers. Making work pay for the bottom third of the workforce should be a top priority for American social policy.

Suggested Citation

  • David R. Howell & Bert M. Azizoglu & Anna Okatenko, 2012. "Confronting Low Pay: Minimum Wage Policy and Employment in the U.S. and France," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2012-5, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
  • Handle: RePEc:epa:cepawp:2012-5
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    References listed on IDEAS

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    1. repec:dau:papers:123456789/10095 is not listed on IDEAS
    2. David Howell & Anna Okatenko, 2010. "By what measure? A comparison of French and US labor market performance with new indicators of employment adequacy," International Review of Applied Economics, Taylor & Francis Journals, vol. 24(3), pages 333-357.
    3. repec:dau:papers:123456789/10045 is not listed on IDEAS
    4. Andrea Bassanini & Romain Duval, 2006. "Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions," OECD Economics Department Working Papers 486, OECD Publishing.
    5. Eve Caroli & Jérôme Gautié, 2008. "Low wage work in France," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00266332, HAL.
    6. Howell David R. & Baker Dean & Glyn Andrew & Schmitt John, 2007. "Are Protective Labor Market Institutions at the Root of Unemployment? A Critical Review of the Evidence," Capitalism and Society, De Gruyter, vol. 2(1), pages 1-73, May.
    7. 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.
    8. Eve Caroli & Jérôme Gautié & Philippe Askenazy, 2008. "Low-wage work and labor market institutions in france," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00266376, HAL.
    9. Arindrajit Dube & T. William Lester & Michael Reich, 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 945-964, November.
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    More about this item

    Keywords

    minimum wage; employment;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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