Tuesday, March 9, 2010

Minimum Wage Blog

The Human Resource Minister needs help in making up his mind:

Blogspot being set up to gather views on minimum wages

“KUALA LUMPUR: The Human Resource Ministry is expected to set up a blogspot in two weeks, to gather views and opinion from the public on the minimum wage implementation mechanism…Its Minister Datuk Dr. S. Subramaniam said it was necessary to collect various views, opinions and suggestions for the minimum wages proposal since there is two versions of request - (a) to have a standard minimum wage scale, (b) to allow market forces to decide.”

My thoughts on the minimum wage have evolved over the past year. My original thinking was based on established research that showed that a minimum wage slightly above the market clearing wage has a negligible impact on employment, while at the same time helps redress asymmetries in the wage bargaining process. Now, I'm less convinced that such a thing can be successfully administered, in the absence of information on what the "market-clearing" wage actually is. There's also the risk of setting the wage floor too high, in which case the ones to suffer are exactly the ones the minimum wage is supposedly there to help – the poor and the young. And then there’s the problem of accounting for regional and industry differences.

If and when this blog actually appears, I think I’ll be dropping by.


  1. I agree with your assessment of the current situation. Skilled workers will definitely have found employment where they are sufficiently compensated.

    People who require the help of minimum wage to subsist will be even more vulnerable of the floor price is set too high as you pointed out.

    Well for sure I am skeptical of the success of a one-size-fit all policy. In terms of price competitiveness, China is way ahead of us. And despite how I disagree with people who oppose minimum wage, I recognise their concerns that it will reduce competitiveness. Nonetheless if we look at the success of Scandinavian countries or even places like Canada, then it is not clear that minimum wage harms productivity or competitiveness.

    I might be wrong in this cause-effect hypothesis, but I think that if we have a financially strong middle class to help drive consumption, then paying them "fair" wages is beneficial, because they will presumably spend it. Even if they don't, they'll save it and then we can direct those savings for worthwhile projects.

    Nice reading your blog. A little suggestion though, try linking the research you mentioned. Always delights Econonerds like me. Anyway, mind writing an advice post for aspiring economists like me (I start my undergrad come Fall). It can be a post on preparing for grad school and all that.

  2. GoatKY,

    Thanks for the comments. I think assessing the impact of implementing a minimum wage really depends on two things (i) the degree to which it differs from the market-clearing wage (ii) the presence or absence of a social security net. In other words, imposing a minimum wage is not an either/or proposition with respect to employment and productivity.

    You might want to read this for a Canadian/theoretical perspective.

    I didn't link to any of the research mentioned in this post, because I've already done it before.