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.
4 Responses
Gavin Wright argues that something similar happened to the southern US as a result of New Deal farm programs and labor law changes(pdf):
I think Chris’ point is that Ford’s intellectual honesty might be doubted. If Einstein’s opinions of Stalin were wrong-headed, at least they were honest–the Protocols, on the other hand, were downright fraudulent.
Of course, it’s a bad idea to take everything at face value, no matter who’s talking–Ford, Einstein, Blattman, or whoever. This is why we gather, interpret, and (try to) replicate data.
I don’t get the Protocols point. Ford was a pro-Nazi, Jew hating nut, but Einstein was sweet on Stalin, and no one thinks that is relevant to relativity.
Reminds me of the CEO who called into NPR in winter 2009, explaining that he’d be willing to accept a higher tax burden, greater deficit, etc. because his customers were middle class, and he needed them to have a little more money to spend on his products.