Minimum Wages, Fringe Benefits, and Working Conditions

Minimum Wages, Fringe Benefits, and Working Conditions

Minimum Wages, Fringe Benefits, and Working Conditions

Minimum Wages, Fringe Benefits, and Working Conditions

Excerpt

Minimum wages are widely regarded as having a significant effect on low-wage workers, affecting the value and the stability of their jobs. To improve the formulation and evaluation of public policies affecting low-wage workers, minimum-wage models are needed to identify the benefits and costs of possible changes in the minimumwage laws. Unfortunately, most of the current minimum-wage models ignore the negative effects that minimum wages can have on the nonwage aspects of work. Instead, most of these models assume that employers do not try to offset their higher mandated wage costs by reducing their nonwage expenditures. As a result, these models have treated the net wage increase due to minimum wages as a measure of its cost to employers. The possibility that these wage increases may in part be offset by employers has been generally ignored.

The assumption that employers do not try to offset their higher mandated wage costs is questionable. It has been a basic assumption of most economists that firms seek to minimize their costs and will thus make offsets. This assumption has proved successful in predicting the actual behavior of firms in many areas. It seems reasonable, then, that this assumption, that firms are cost minimizers, is also applicable to the employers whose wages are increased by a minimum wage. The assumption implies that employers will indeed react to minimum wages by reducing their nonwage expenditures on workers, as well as making any other possible offsets.

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