Do minimum wages drive industrialization?

Minimum wages kill employment, right?

Maybe not. After doubling the wages at his auto plants, Henry Ford explained:

our own sales depend on the wages we pay. If we can distribute high wages, then that money is going to be spent and it will serve to make… workers in other lines more prosperous and their prosperity is going to be reflected in our sales

Of course, this is the man you brought you The Protocols of the Elders of Zion, so maybe we can’t accept everything at face value.

Now, evidence from Indonesia’s industrialization:

Big Push models suggest that local product demand can create multiple labor market equilibria: one featuring high wages, formalization, and high demand and one with low wages, informality, and low demand. I demonstrate that minimum wages may coordinate development at the high wage equilibrium.

formal employment increases and informal employment decreases in response to the minimum wage. Local product demand also increases, and this formalization occurs only in the non-tradable, industrializable industries

A new paper from Jeremy Magruder.