Accéder au contenu principal

The minimum wage and aggregate demand

The debate about whereas or not the minimum wage should be raised may be summarized as follow: on one side, opponents argue that a higher mandatory minimum wage would prevent employers to hire unexperienced / underqualified workers. If you think about it, it makes perfect sense: just imagine what would happen if, somewhere in the United States, the government was to impose a—say—100 dollars minimum wage per hour. It is pretty obvious that it would put people out of work since many companies—especially small companies—would simply not be able to pay such rates. Of course, it is also means that a 1 dollar minimum wage would probably have no effect whatsoever on the unemployment rate since, as far the United States are concerned, even the less experienced / qualified workers are worth much more than that. So it really is a matter of numbers: a $15 minimum wage is likely to put a number people out of work but the question is whether or not that number is significant.

On the other side, the proponents of such a raise argue that, because low-income workers have a higher marginal propensity to consume (which is true), a 15 dollars minimum wage would boost aggregate demand and therefore compensate (or even more than compensate) the cost effect. Admittedly, it also makes sense: modulo the share of imported goods and services, a higher solvable demand is likely to increase the sales of American corporations which, in turn, might boost demand for workers, lower unemployment and therefore push wages up. Again, it’s a matter of numbers: putting aside moralists and the economically illiterates, the whole debate—as I understand it— is about which of these two effects will have the stronger influence on the economy.

Now here is a weird fact: I don’t what the figures are in the United States but in France [1], it happen that 28% of minimum wage workers are living with an above median income [2]. Yes, really and no, it’s only marginally related to the redistributive system: these workers are simply married with a high-wage earner and, as a result, they actually have a relatively high level of income. Thinking about it, I know many households in that situation starting by my own, a few years ago, when my wife was getting the minimum the wage [3] while I was probably in the top decile of French wage earners.

So while it’s true that low-income households have a higher marginal propensity to consume, it is not always true—far from it— that minimum wage workers belong to low-income households. Another example that might even not appear in statistics depending on how they are built, is the case of youngsters in their first job that still live with their parents: of course, mum and dad may be poor but they may also be wealthy and even very wealthy.

Taking this into account, a raise in the minimum wage would only have the desired effect—boost the aggregate demand—for a fraction of minimum wage workers. For those who belong to average or high-income households, these additional dollars might end up as savings; especially if the raise causes a rise in unemployment in the first place.

[1] Source: Insee, 2011 (in French).
[2] These are after tax and redistribution incomes, adjusted for the number of people belonging to households.
[3] Her wages were raised many times since then (and much faster than the minimum wage in case you wonder).


Posts les plus consultés de ce blog

Brandolini’s law

Over the last few weeks, this picture has been circulating on the Internet. According to RationalWiki, that sentence must be attributed to Alberto Brandolini, an Italian independent software development consultant [1]. I’ve checked with Alberto and, unless someone else claims paternity of this absolutely brilliant statement, it seems that he actually is the original author. Here is what seems to be the very first appearance of what must, from now on, be known as the Brandolini’s law (or, as Alberto suggests, the Bullshit Asymmetry Principle):The bullshit asimmetry: the amount of energy needed to refute bullshit is an order of magnitude bigger than to produce it.— ziobrando (@ziobrando) 11 Janvier 2013To be sure, a number of people have made similar statements. Ironically, it seems that the “a lie can travel halfway around the world while the truth is still putting on its shoes” quote isn’t from Mark Twain but a slightly modified version of Charles Spurgeon’s “a lie will go round the w…

Un garçon qui n’a jamais eu de métier

Jean-Luc Mélenchon fait ses premières armes en politique à Lons-le-Saunier, en mai 1968. À cette époque il n’est que lycéen — en première littéraire — mais c’est lui, racontent ses anciens camarades de classe, qui va importer les évènements parisiens dans son Jura d’adoption. C’est lors de cette première expérience politique qu’il va réaliser son indiscutable talent d’orateur et se familiariser avec la pensée d’extrême gauche et notamment Karl Marx qui devient son livre de chevet en terminale. Il passe son bac en 1969 et s’inscrit à la faculté des lettres de l’université de Besançon pour y étudier la philosophie.Sitôt inscrit, le jeune Mélenchon se rapproche de l’UNEF et déserte les amphis pour se consacrer au militantisme. Il parviendra quand même à obtenir sa licence en 1972 mais ne poussera pas ses études plus loin : la même année, il rentre formellement en politique en rejoignant l’Organisation Communiste Internationaliste (OCI), une organisation trotskyste de tendance lambertiste…

Nombre d'heures travaillées par an et pour 100 personnes

Selon les données de l’OCDE pour 2015, le taux d’emploi de la population française âgée de 15 à 64 ans était de 63.8%. C’est-à-dire que sur 100 personnes en âge de travailler, un peu moins de 64 ont effectivement occupé un emploi — fût-ce à temps partiel — durant l’année considérée. Par ailleurs, selon la même source, le temps de travail annuel moyen des français qui ont travaillé en 2015 s’établissait à 1 482 heures [1].En croisant ces deux données, on peut facilement estimer le nombre d’heures de travail fournies en une année par 100 français en âge de travailler : ça fait environ 94 552 heures. Juste pour remettre ce chiffre dans son contexte, voici ce que ça donne pour tous les pays pour lesquels les données sont disponibles dans les bases de l’OCDE : Juste pour votre information, pas moins de 84.7% des islandais âgés de 15 à 64 ans travaillent (c’est le record du panel) et ils travaillent en moyenne 1 880 heures par an. Ce sont les mexicains et les coréens (du sud) qui, lorsqu’ils…