The money-quote from the stuff story has to be:
“Initially business groups were opposed to lifting the minimum wage, which was set at $7 an hour when Labour took office in 1999.
However, in recent years they became more relaxed as the labour market tightened and hiring staff became more difficult.”
This tells us that the minimum wage increases are unbinding for a lot more groups than they used to be, and as a result the effect of the policy will be minimal.
Lets try to discuss this increase in regards to yesterdays conditions for a minimum wage to ‘increase’ employment.
Ok, so we had the conditions:
- Firm has market power in the labour market
- Workers have no market power
- Everyone must get an increasing wage as employment rises
- Firm will not be put out of business by increase in average costs
Now, as far as I can tell there are two main firm types that change their wage rate based on the minimum wage: Small firms that require only a minimal labour input (eg dairies), and large firms that hire relatively ‘low-skilled’ labour (eg my old workplace, the Warehouse – where I got to be a checkout operator).
As well as the firm types we need an idea of location. In an area with a Warehouse and dairies, the Warehouse is often the dominant firm (in both labour and goods markets) while the dairies act as residual claimants in the market. As a result, the Warehouse does act as a ‘monopsony‘ in the labour market, albeit one that is constrained by the size of a bunch of dairies.
As a result of NotSneaky’s idea it is possible that this increase in the minimum wage may lead to further increases in employment by the Warehouse, by reducing the marginal cost of further hiring.
Now what do you think the increase in the minimum wage will do, and why?