Interesting post by Tyler Cowen of Marginal Revolution.
"In
response to Greg Mankiw’s recent NYT piece,
I’ve been hearing the argument again that the minimum wage and wage subsidies
are complements. According to this view, if you have only wage subsidies,
employers will lower what they offer to the workers and capture too much of the
value of the subsidy. A higher minimum wage is supposed to prevent this from
happening and thus ensure that workers capture more of the gains.
Even if
you accept every premise of this argument, I am not sure how it is supposed to
apply today, at least within a Keynesian framework. For the Keynesians, the
employment problem today is almost purely one of demand, not labor supply. To
spur more hiring, we therefore should wish the employers to capture more of the
surplus. A belief in hysteresis makes it all the more compelling simply to get
potential workers into a job as soon as possible.
So a
higher minimum wage and wage subsidies might be complements at some time
period, but they should not be effective complements today. Furthermore, if
demand problems are going to be with us for a long time (not my view), a higher
minimum wage and wage subsidies might not be complements anytime soon."
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