Elasticity

Do low-paid workers’ wage increases raise unemployment – and is this relevant for the minimum wage debate?

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Dieter von Fintel on 30 March 2016

Increasing the wages of workers in the bottom half of the wage distribution contributes less to regional unemployment than increasing the wages of better-paid workers. The wages of the worst-paid – who live in regions of low union and large-firm concentration – play almost no role in unemployment. Collective bargaining arrangements appear to explain these differences. This phenomenon may soften the negative impact of a national minimum wage on employment in the short run, but might make matters worse in the longer run.