There is no evidence that increases in the
minimum wage have hurt immigrants
According to economic theory, a minimum wage
reduces the number of low-wage jobs and increases the number of available
workers, allowing greater hiring selectivity. More competition for a smaller
number of low-wage jobs will disadvantage immigrants if employers perceive
them as less skilled than native-born workers—and vice versa. Studies
indicate that a higher minimum wage does not hurt immigrants, but there is
no consensus on whether immigrants benefit at the expense of natives.
Studies also reach disparate conclusions on whether higher minimum wages
attract or repel immigrants.
Does the transition to market economies imply
growing wage inequality and, if so, along what dimensions?
Examining the implications of changes in public
sector wage-setting arrangements due to privatization is a relatively new
area of economics research, with few studies having analyzed the effects of
public sector restructuring on relative wages in developed countries. There
is, however, a growing empirical literature that measures the effects of
transitioning from central planning to market-based systems on
public–private sector wage differentials. Policymakers can learn from this
evidence about the ways in which ownership transformation affects the
distribution of wages in both the public and private employment sectors.
Stronger wage coordination and higher union
density are associated with lower unemployment and higher inflation
Aside from employment protection laws, which
have been converging, other labor market institutions in new and old EU
member states, such as wage bargaining coordination and labor union density,
still differ considerably. These labor market institutions also differ among
the new EU member states, with the Baltic countries being much more liberal
than the others. Research that pools data on old and new EU member states
shows that wage coordination mechanisms can improve a country’s
macroeconomic performance. Stronger wage coordination and higher union
density reduce the response of inflation to the business cycle.
Wage-setting institutions narrow the gender pay
gap but may reduce employment for some women
There are large international differences in the
gender pay gap. In some developed countries in 2010–2012, women were close
to earnings parity with men, while in others large gaps remained. Since
women and men have different average levels of education and experience and
commonly work in different industries and occupations, multiple factors can
influence the gender pay gap. Among them are skill supply and demand,
unions, and minimum wages, which influence the economywide wage returns to
education, experience, and occupational wage differentials. Systems of wage
compression narrow the gender pay gap but may also lower demand for female
When workers and firms cannot commit to
long-term contracts and capital investments are sunk, union power can reduce
Although coverage of collective bargaining
agreements has been declining for decades in most countries, it is still
extensive, especially in non-Anglo-Saxon countries. Strong unions may
influence firms’ incentives to invest in capital, particularly in sectors
where capital investments are sunk (irreversible), as in research-intensive
sectors. Whether unions affect firms’ investment in capital depends on the
structure and coordination of bargaining, the preference of unions between
wages and employment, the quality of labor-management relations, and the
existence of social pacts, among other factors.
What are the economic implications of union wage
bargaining for workers, firms, and society?
Despite declining bargaining power, unions
continue to generate a wage premium. Some feel collective bargaining has had
its day. Politicians on both sides of the Atlantic have recently called for
the removal of bargaining rights from workers in the name of wage and
employment flexibility, yet unions often work in tandem with employers for
mutual gain based on productivity growth. If this is where the premium
originates, then firms and workers benefit. Without unions bargaining
successfully to raise worker wages, income inequality would almost certainly
be higher than it is.
Incidence of piecework has significantly reduced
in advanced industrialized economies—has its decline gone too far?
A pieceworker receives a fixed rate for each
unit (“piece”) produced or action performed. In part, the rate reflects a
cost of monitoring output. A timeworker receives a fixed wage rate per hour
that, in the short term, does not vary with output performance. From the
18th century up to the last third of the 20th century these were the two
dominant payment methods in the manufacturing and production industries.
Yet, today the incidence of piecework in advanced economies is very small,
having lost considerable ground to time rates and to other forms of
incentive pay. What caused this transformation, and has the movement away
from piecework gone too far?
Enhancing the earned income tax credit would do
more to reduce poverty, at less cost, than increasing the minimum wage
Minimum wage increases are not an effective
mechanism for reducing poverty. And there is little causal evidence that
they do so. Most workers who gain from minimum wage increases do not live in
poor (or near-poor) families, while some who do live in poor families lose
their job as a result of such increases. The earned income tax credit is an
effective way to reduce poverty. It raises only the after-tax wage rates of
workers in low- and moderate-income families, the tax credit increases with
the number of dependent children, and evidence shows that it increases labor
force participation and employment in these families.
The size and wage level of the public sector affect overall
employment volatility and the economy
Public sector jobs are created because governments opt to
provide goods and services produced directly by public employees. Governments, however, may
also choose to regulate the size of the public sector in order to stabilize targeted national
employment levels. However, economic research suggests that these effects are uncertain and
critically depend on how public wages are determined. Rigid public sector wages lead to
perverse effects on private employment, while flexible public wages lead to a stabilizing
effect. Public employment also has important productivity and redistributive effects.