The international experience of minimum wages in an economic downturn

摘要

What should governments do with the level of the minimum wage (MW) in times of recession? In an economic downturn when most workers face fcdiing real wages is it appropriate to let the MWfall or are the positive effects of the All V on inequality enough to justify its ufnating - and f so what might be the consequences on a country's employment level? This paper reports new estimates (f t/ie employment effects of the MW by focusing on the recessionary experiences across countries. Using international data we exploit: cross-national variaticm in the level and timing of the All V ufnating and the exact timing of the recessionary experiences in different countries with a panel data set comprising 33 OECD over the period 1971-2009. Our panel data allow us to differentiate the effect of AIWs on employment in periods oj economic downturn as well as periods of economic growth. We also account for institutional and other policy related dfferences that might have an impact cm employment other than the MW. We find that the ansimr depends on whether one considers adults or young people, and to some extent, on what measure of the MW is considered. The answer is also .somewhat sensitive to whether one considers that the MW level is a choice option of the government which is inextricably interrelated to the determination of emplcyment - that is, the extent to which the MW is endogenous. Using a political complexion of the government' instrumental variable (IV) we find that the MW only has a negative impact on youth employment. This leaves each government with the dilemma of raising the MW and reducing inequality or increasing the MW and accepting that this will reduce employmerd levels amongst young people and those on the margins of work.