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Minimum wages reduce entry-level jobs, training, and lifetime income
Policymakers often propose a minimum wage as a means of raising incomes and lifting workers out of poverty. However, improvements in some young workers’ incomes due to a minimum wage come at a cost to others. Minimum wages reduce employment opportunities for youths and create unemployment. Workers miss out on on-the-job training opportunities that would have been paid for by reduced wages upfront but would have resulted in higher wages later. Youths who cannot find jobs must be supported by their families or by the social welfare system. Delayed entry into the labor market reduces the lifetime income stream of young unskilled workers.
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Reducing the size of the shadow economy requires reducing its attractiveness while improving official institutions
The shadow (underground) economy has a major impact on society and economy in many countries. People evade taxes and regulations by working in the shadow economy or by employing people illegally. On the one hand, this unregulated economic activity can result in reduced tax revenue and fewer public goods and services, lower tax morale and less tax compliance, higher control costs, and lower economic growth rates. But on the other hand, the shadow economy can be a powerful force fostering institutional change and boosting the overall production of goods and services in an economy. The shadow economy has implications on the political order and institutional change.
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Whether raising minimum wages reduces—or increases—poverty depends on the characteristics of the labor market and Households
Raising the minimum wage in developing countries could increase or decrease poverty, depending on labor market characteristics. Minimum wages target formal sector workers—a minority in most developing countries—many of whom do not live in poor households. Whether raising minimum wages reduces poverty depends not only on whether formal sector workers lose jobs as a result, but also on whether low-wage workers live in poor households, how widely minimum wages are enforced, how minimum wages affect informal workers, and whether social safety nets are in place.
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Countries set minimum wages in different ways, and some countries set different wages for different groups of workers
The minimum wage has never been as high on the political agenda as it is today, with politicians in Germany, the UK, the US, and other OECD countries implementing substantial increases in the rate. One reason for the rising interest is the growing consensus among economists and policymakers that minimum wages, set at the right level, may help low paid workers without harming employment prospects. But how should countries set their minimum wage rate? The processes that countries use to set their minimum wage rate and structure differ greatly, as do the methods for adjusting it. The different approaches have merits and shortcomings.
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Promoting accurate bargainer expectations
regarding outcomes from binding dispute resolution is worth the effort
Alternative dispute resolution procedures such as
arbitration and mediation are the most common methods for resolving wage,
contract, and grievance disputes, but they lead to varying levels of success
and acceptability of the outcome depending on their design. Some innovative
procedures, not yet implemented in the real world, are predicted to improve
on existing procedures in some ways. Controlled tests of several procedures
show that the simple addition of a nonbinding stage prior to binding dispute
resolution can produce the best results in terms of cost (monetary and
“uncertainty” costs) and acceptability.
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Sectoral collective contracts reduce
inequality but may lead to job losses among workers with earnings close to
the wage floors
In many countries, the wage floors and
working conditions set in collective contracts negotiated by a subset of
employers and unions are subsequently extended to all employees in an
industry. Those extensions ensure common working conditions within the
industry, mitigate wage inequality, and reduce gender wage gaps. However,
little is known about the so-called bite of collective contracts and whether
they limit wage adjustments for all workers. Evidence suggests that
collective contract benefits come at the cost of reduced employment levels,
though typically only for workers earning close to the wage floors.
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Can regulation ensure that noncompete agreements benefit both
workers and firms?
Labor market institutions that may weaken workers’ bargaining
leverage have received increased scrutiny in recent years. One example is noncompete
agreements, which prevent workers from freely moving across employers, potentially weakening
earnings growth. New data sources and empirical evidence have led policymakers to consider
sharp restrictions on their use, especially among lower-income workers. These restrictions
take many different forms, each of which has unique tradeoffs between the desire to protect
workers while allowing firms to use noncompetes in cases where they may create social
value.
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Are low-paid jobs stepping stones to higher-paid
jobs, do they become persistent, or do they lead to recurring
unemployment?
Low-wage employment has become an important
feature of the labor market and a controversial topic for debate in many
countries. How to interpret the prominence of low-paid jobs and whether they
are beneficial to workers or society is still an open question. The answer
depends on whether low-paid jobs are largely transitory and serve as
stepping stones to higher-paid employment, whether they become persistent,
or whether they result in repeated unemployment. The empirical evidence is
mixed, pointing to both stepping-stone effects and “scarring” effects (i.e.
long-lasting detrimental effects) of low-paid work.
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Overtime penalties, payroll taxes, and other
labor policies alter costs and change employment and output
Higher labor costs (higher wage rates and
employee benefits) make workers better off, but they can reduce companies’
profits, the number of jobs, and the hours each person works. The minimum
wage, overtime pay, payroll taxes, and hiring subsidies are just a few of
the policies that affect labor costs. Policies that increase labor costs can
substantially affect both employment and hours, in individual companies as
well as in the overall economy.
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Strictly controlling overtime hours and pay does
not boost employment—it could even lower it
Regulation of standard workweek hours and
overtime hours and pay can protect workers who might otherwise be required
to work more than they would like to at the going rate. By discouraging the
use of overtime, such regulation can increase the standard hourly wage of
some workers and encourage work sharing that increases employment, with
particular advantages for female workers. However, regulation of overtime
raises employment costs, setting in motion economic forces that can limit,
neutralize, or even reduce employment. And increasing the coverage of
overtime pay regulations has little effect on the share of workers who work
overtime or on weekly overtime hours per worker.
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