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The Minimum Wage and the Path toward a High-Wage Economy

Listed author(s):
  • Oren M. Levin-Waldman

    (The Jerome Levy Economics Institute)

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    According to Resident Scholar Oren M. Levin-Waldman, the arguments both in favor of raising the minimum wage (to restore its real spending power to levels of previous years, to increase the incentive to work, and, as a matter of fairness, to allow those who work to earn incomes above the poverty line) and against raising the minimum (displacement effects resulting in lower levels of employment) both have merit, but ultimately "miss the point" because their focus is too narrow. They concentrate on how a change in the wage floor would affect one segment of the labor market (those at the bottom or teenage workers, for example) and not on how it would affect the market as a whole. Moreover, because findings on the short- and intermediate-term effects of a change in the minimum wage are inconclusive, discussion should focus on the long-term effects of raising the minimum wage, which could include raising productivity levels. The arguments for and against a higher minimum wage boil down to whether the U.S. economy should follow a low-road/low-wage or high- road/high-wage growth path. A low-road strategy involves developing an economy based on mass production, with large numbers of workers hired for low-skill jobs at low wages. A high-road strategy involves developing an information-based economy, which would require a flexible workforce with a high level of skills; such workers would, of course, command higher wages. (They could obtain the necessary skills through education and training programs.) Levin-Waldman contends that following a high-road path would raise productivity. Therefore, the standard neoclassical labor market argument should be "stood on its head" and firms should be pushed toward a high-road path. Legislating an increase in the minimum wage would contribute to accomplishing this task. Redesigning the welfare system so that it goes beyond income maintenance to include boosting the perceived value of work would be another important step.

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    Paper provided by EconWPA in its series Macroeconomics with number 9805029.

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    Length: 33 pages
    Date of creation: 30 Jun 1998
    Handle: RePEc:wpa:wuwpma:9805029
    Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on PostScript; pages: 33; figures: included
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