Does this imply that skilled and unskilled labour are substitutes? If so an increase in the minimum wage will decrease the relative price of skilled labour, implying that a higher minimum wage makes skilled labour more attractive, which may possibly lead to an increase in skilled labour.

I’m also not too sure about this survey. They seem to just accept that most studies find the impact of the of the minimum wage on employment is not statistically significant, but say that since most of them have a negative sign on a non-significant coefficient it must be negative.

Fundamentally I do believe that the immediate impact of an increase in the minimum wage will be an increase in unemployment for unskilled workers. However, I don’t think I’m convinced that this will always be the case, and the impact of the minimum wage as a policy should involve more factors than its employment impact.

In sum, we view the literature – when read broadly and critically –
as largely solidifying the view that minimum wages reduce employment
of low-skilled workers, and as suggesting that the low-wage labor
market can be reasonably approximated by the neoclassical competitive
model.

In a sense this makes sense. Think of it this way, firms hire labour based on their expectation of the marginal value of that labour. If they believe that youth workers have a lower marginal product, then for the same wage they would rather hire an adult worker.

Now we could have an increase in the minimum wage which increase total employment but decreases youth employment if the higher wage increases the supply of adult workers. In this case we would have changed the firms marginal cost curve in such a way that they will hire more staff in order to profit maximise, but the increase in the supply of adult workers would exceed the increase in equilibrium employment, implying that youth employment is lower.

This could help explain why cross-sectional studies on the minimum wage are usually ambiguous about total employment, but show a decrease in youth unemployment 🙂

MINIMUM WAGES, LABOR MARKET INSTITUTIONS, AND YOUTH EMPLOYMENT: A CROSS-NATIONAL ANALYSIS

I am glad that you brought up the inflation point, as an increase in the minimum wage seems like an it would be rather inflationary in the current environment.

People may ask why it is so inflationary. Well the answer is that people on the minimum wage will spend a greater proportion of this income than other income groups would if given the same increase. This implies that demand will increase for goods in our already capacity constrained economy, forcing prices up – in fact, since business have said they don’t mind a higher minimum wage, they must believe that they can pass the higher labour cost on to consumers anyway.

The counter-argument to this would be to say that a great proportion of the number of people on the minimum wage are secondary earners. However, if this is the case then there is no equity reason to have a minimum wage, making it sort of pointless.

Another counter-argument could be that, if the increase in the minimum wage increases output, as we found it could in the previous post, then this would counter the inflationary impact. This could be a good point, ultimately it would be good if we had some numbers to back it up. My feeling is that the general impact of an increase in the minimum wage would be to further drive inflation.

So as dpfdpf pointed out we have inflation as a potential problem from the minimum wage increase. Any others?

If the minimum wage goes up, that does put some pressure on employers like me to increase wages (which is inflationary as I will put fees up also) so we maintain a good gap.