Minimum wages and jobs: The overseas story

Young workers may be most vulnerable to job losses at a high level of the minimum wage. There is less evidence available on the employment effects, if any, for other groups such as women and part-time workers.

Turning to our own neighbourhood, one of the most interesting studies in this field has been done by New Zealand researchers who examined very large increases in youth wages in the period following 2001 and found evidence of positive employment responses. They studied changes to the minimum wage system which had led to wage increases for 18 and 19 year-olds in the order of 69 per cent, and increases for 16 and 17 year-olds of about 41 per cent. It is worth noting how these increases compare with the wage increases studied by Card and Krueger: they were only in the range of 19 to 27 per cent. Clearly, if there was to be an adverse impact on employment, then wage increases of this size should have made it evident. Instead, the New Zealand researchers found:

Positive employment responses to the changes for both groups of teenagers, and that 16-17 year-olds increased their hours worked by 10-15 per cent following the minimum wage changes.

In summary, we could say that the research on the issue of wages and jobs remains strongly divided, but the conventional wisdom is no longer conventional. It is now very much an open question whether pay increases for low wage workers really do lead to job losses down the track. There are some sub-groups, such as young people, for whom the evidence raises concerns. But when it comes to the low wage workforce as a whole, there is no convincing body of contemporary evidence that the conventional wisdom applies.

One of the problems for researchers who are wedded to outmoded economic theories is their pursuit of a generally acceptable and universally applicable answer to this question of wages and jobs. Such a goal is elusive, if not utopian. There are so many unique factors in a local, or even national economies, that universally applicable findings are almost impossible to obtain. The gradualist logic of the Australian Industrial Relations Commission seems to be the most sensible approach. Instead of relying on the casuistry of economic theory, these industrial judges have examined the actual consequences of each National Wage case in the context of the Australian economy, and then acted accordingly.