Myths about the Minimum Wage

By Lewis, Philip | Review - Institute of Public Affairs, March 1997 | Go to article overview

Myths about the Minimum Wage


Lewis, Philip, Review - Institute of Public Affairs


The effects of imposing a minimum wage are one of the most emotive and yet least understood issues in economic and labour market debates. Given the importance of this issue, particularly in the context of the current ACTU `Living Wage' Case, it is timely to provide a reasoned analysis of the impacts of minimum wages.

THE clue to understanding the minimum wage debate is the nature of the labour market.The concept of the labour market is an abstract one, but is nevertheless useful for analysing issues such as the overall level of employment and unemployment.

There is considerable empirical research on the labour market in Australia and the effect on employment of rises in average wages. This research indicates that a 10 per cent increase in average wages reduces employment by about 8 per cent. Thus, moderation in average wages increases employment; so, with the usual caveat that all other things are equal, unemployment will fall.

It is tempting to use this evidence to suggest that imposing a minimum wage above the market rate will reduce employment and increase unemployment. Since most workers, however, would in any case obtain a wage higher than the minimum, the effect of imposing a minimum wage increases the wages only of those who would otherwise receive the lowest wages. The effect on the average wage is small and, thus, the impact on employment and unemployment is also small. This theoretical argument is supported by empirical evidence which shows that the impacts of minimum wages on total employment and unemployment are small.

To get to grips with the effects of a minimum wage it is necessary to dig deeper into the operations of the labour market. In reality, there is no such thing as a single labour market but rather there are very many labour markets each with their own supply and demand. For instance, employment in a hospital will be determined by markets for specialists, doctors, nurses, clerks, cleaners, etc., each with different amounts of required skills and characteristics resulting in different wages. An important characteristic of the multitude of labour markets is substitutability. Although it is common, particularly in the professions, to think of occupations being rigidly defined, in practice there is a great deal of substitutability between workers. For instance, at various times, relatively junior doctors can perform duties of specialists, registered nurses often perform duties which would well be the domain of doctors. TAFE-trained enrolled nurses can be substituted for university-trained registered nurses and, increasingly (particularly in aged care), relatively unqualified 'carers' perform duties which were once the province of nurses.

Most empirical studies of individual labour markets point to the high degree of substitutability, with respect to demand, between types of labour. There is also strong evidence that, given the degree of substitutability, the demand for labour in these more narrowly defined labour markets is highly responsive to relative wages. Also, generally, the lower-skilled the worker, then the more responsive is demand to relative wages. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Myths about the Minimum Wage
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.