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February 2021 Newsletter

What are the benefits of higher minimum wages?

When minimum wages are introduced or raised, are there fewer jobs?

The potential benefits of higher minimum wages come from the higher wages for affected workers, some of whom are in poor or low-income families. The potential downside is that a higher minimum wage may discourage firms from employing the low-wage, low-skill workers that minimum wages are intended to help. If minimum wages reduce employment of low-skill workers, then minimum wages are not a “free lunch” with which to help poor and low-income families, but instead pose a trade-off of benefits for some versus costs for others.

Although a minimum wage policy is intended to ensure a minimal standard of living, unintended consequences undermine its effectiveness. IZA World of Labor author David Neumark has consulted the evidence and whilst the findings are not unanimous, the statistics suggest that minimum wages reduce the jobs available to low-skill workers.

Here some of the pros and cons discussed in his article:

Pros:

Minimum wages may help policymakers address public demands to combat rising inequality.
Minimum wages deliver earnings gains for some workers.
Some of the workers who gain from minimum wages are in poor or low-income families.
Some studies do not find that minimum wages lead to fewer jobs.

Cons:

Increasing amounts of evidence from the US indicate that higher minimum wage levels lead to fewer jobs.
Studies that focus on the least-skilled workers find the strongest evidence that minimum wages reduce jobs.
Targeted tax credits do a better job of reaching the poor than minimum wages do.
Low-paying jobs requiring low skills are the jobs most likely to decline with increased minimum wages.
In the US, most evidence does not indicate that minimum wages help poor or low-income families, or reduce most forms of public assistance.

Read David Neumark's full article:
Employment effects of minimum wages (Deutsch) (Español)

Read other articles and opinion pieces
on minimum wages:

Minimum wages hurt young people
- opinion piece

by Charlene Marie Kalenkoski

Does increasing the minimum wage reduce poverty in developing countries?
- opinion piece

by T. H. Gindling

Does increasing the minimum wage reduce poverty in developing countries? (Deutsch) (Español) - article

by T. H. Gindling

The minimum wage versus the earned income tax credit for reducing poverty (Deutsch)
- article

by Richard V. Burkhauser

How are minimum wages set? (Deutsch)
- article

by Richard Dickens

Do minimum wages stimulate productivity and growth? (Deutsch) (Español)
- article

by Joseph J. Sabia

What are the effects of minimum wages?
Consult our key topics page.

Consult our key topic pages to find relevant articles, opinion pieces and videos on topics such as
employment protection and female labor force participation,
amongst others.

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Latest articles

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One-pagers are now available in Spanish. Take a look at the
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Upcoming events:

8th IZA Workshop: Environment, Health and Labor Markets, March 1 2021 - Online
4th IZA Labor Statistics Workshop: Measurement of Labor Market Conditions, April 22-24 - Online
SOLE's 26th Annual Meeting, May 14-15 2021 - Philadelphia, United States
17th IZA Annual Migration Meeting, May 28-29 2021 - Online
4th IZA/Higher School of Economics Workshop: Thirty Years after the Fall of the Iron Curtain: The Contribution of Labor Market Adjustment to Transition and Convergence, June 30 - Online
IZA Workshop: Labor Market Institutions, September 03-04 2021 - Online
World Employment Conference 2020: Steering a labour market in transformation, September 07-08 2021 - Madrid, Spain
33rd Annual Conference of the European Association of Labour Economists, Sept 16-18 2021 - Padua, Italy
4th IDSC of IZA Workshop: Matching Workers and Jobs Online - New Developments and Opportunities for Social Science and Practice, October 08 - Online

Articles relating to pandemics and the labor market:

The Covid-19 pandemic is likely to have lasting economic and social impacts on employment, income, and working conditions in labor markets around the world.

IZA has therefore invited a number of experts to monitor individual countries' crisis responses on their
Crisis Response Monitoring site:

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Read David Neumark's full article: Employment effects of minimum wages (Deutsch) (Español)

Minimum wages hurt young people - opinion piece

Does increasing the minimum wage reduce poverty in developing countries? - opinion piece

Does increasing the minimum wage reduce poverty in developing countries? (Deutsch) (Español) - article

The minimum wage versus the earned income tax credit for reducing poverty (Deutsch) - article

How are minimum wages set? (Deutsch) - article

Do minimum wages stimulate productivity and growth? (Deutsch) (Español) - article

What are the effects of minimum wages? Consult our key topics page.

Consult our key topic pages to find relevant articles, opinion pieces and videos on topics such as employment protection and female labor force participation, amongst others.

For commentary on the effects of Covid-19 see Covid-19: Pandemics and the labor market. See National responses to Covid-19 for expert perspectives on the effects of the pandemic on individual countries or cities.