In his Journal on Income Inequality Milton Friedman highlights that despite Minimum wage laws being enacted as a response to Income inequality,they lead to increased poverty as some employees lose their jobs.
Dear Januarius, thank you very much for the question. The literature on the labour market is often too divergent from the functioning of the labour market. The solutions to unemployment of the main theories are far from consensus. One could mention the neoclassical paradigm - among which would be Friedman - where labour market imbalances are resolved by a relative price adjustment, self-regulating as in any other market, on the one hand. And the concept of unemployment in the modern sense that occurs only at the beginning of the twentieth century (Salazar, 2011), on the other hand. Understood as an involuntary phenomenon (Webb and Webb, 1909), and of a social nature, caused by the malfunction of the labour market, which requires the action of the State for its solution (Beveridge, 1930). While this latter explanation takes on greater emphasis with Keynes.
I apologize Mahmoud if the answer was very general. Greetings
-Beveridge, W.H. (1930). Unemployement. A problem of industry. Londres, Longman.
-Webb, B. T Webb, S. (1909). The break-up of the poor laws, Londres, Fabian Society, 1909.
-Salazar, O. C. (2011). La precarización laboral y el desempleo como consecuencias del neoliberalismo y la globalización. Revista Tendencias & Retos, (16), 43-57.
Estimado Januarius , muchas gracias por la pregunta. La bibliografía respecto al mercado de trabajo suele ser demasiado divergente respecto al funcionamiento del mercado de trabajo. Las soluciones al desempleo de las principales teorías están lejos del consenso. Podría mencionarse el paradigma neoclásico– entre los cuales se encontraría a Friedman–, en donde los desequilibrios del mercado de trabajo se resuelve mediante un ajuste de precios relativos, autorregulándose como sucede en cualquier otro mercado, por un lado. Y el concepto de desempleo en sentido moderno que se produce recién a principios del siglo XX (Salazar, 2011), por otro. Entendido como fenómeno involuntario (Webb y Webb, 1909), y de carácter social, causado por el mal funcionamiento del mercado de trabajo, que requiere la acción del Estado para su solución (Beveridge, 1930). Si bien esta última explicación cobra mayor énfasis con Keynes.
Le pido disculpas Mahmoud si la respuesta fue muy general. Saludos
-Beveridge, W.H. (1930). Unemployement. A problem of industry. Londres, Longman.
-Webb, B. T Webb, S. (1909). The break-up of the poor laws, Londres, Fabian Society, 1909.
-Salazar, O. C. (2011). La precarización laboral y el desempleo como consecuencias del neoliberalismo y la globalización. Revista Tendencias & Retos, (16), 43-57.
Hello Januarius Emmanuel
In short, about the effects from a minimum wage law there are two opposite opinions:
(a) According to standard economic theory (as Friedman predicts), the labour market is assumed to be perfectly competitive, increasing the minimum wage decreases the employment of minimum wage workers, thus increases poverty.
(b) An alternate view of the labour market has low-wage labour markets dominated by firms that have significantly more market power than the workers. Under this assumption, the minimum wage could increase wages and employment, therefore decrease poverty.
Look up any recent minimum wage study (such as the ones suggested above) and you will find a summary of the same arguments. Empirically, there is no consensus. some studies show that minimum wages create unemployment, some show no effect and some indicate a positive effect (i.e. decrease poverty).
Dear Januarius Emmanuel ,
It is clearly a topic where the evidence is still controversial. I suggest checking the main recent surveys on the topic:
Article Minimum wages, employment, and the distribution of income
https://mitpress.mit.edu/books/minimum-wages
https://press.princeton.edu/books/hardcover/9780691158938/the-economics-of-imperfect-labor-markets (the relevant chapter)
I hope it helps.
Cheers,
José-Ignacio
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