IMF's Loungani: Demand for Labor is Downward-Sloping
By David Henderson
I was on the road from Sunday a.m. to late last night and thus my sparser than usual blogging. I taught classes in Patuxent River, MD on Monday, Norfolk, VA on Tuesday, and Arlington, VA on Wednesday, with lots of driving in between and a flight home last night. I’m one tired puppy.
Now to an interesting study that caught my eye.
Our study is the first to use data on minimum wage changes for over 2400 counties in China. We combine the information on minimum wages changes with employment data from the Annual Survey of Industrial Firms, which covers over 70 percent of China’s manufacturing employment. While China instituted a minimum wage system in 1994, enforcement of compliance with the law was significantly tightened only in 2004; the results described below are based on post-2004 data.
So what does the evidence show? On average across all firms, we find that an increase in the minimum wage leads to a small decline in employment: a 10% percent increase in the minimum wage lowers employment by a little over 1% percent.
This is from Prakash Loungani, “Does Raising the Minimum Wage Hurt Employment? Evidence from China,” October 23, 2014.
But if raising the minimum wage lowers employment, and ends up excluding low-wage workers from employment prospects, it may have adverse effects on both welfare and efficiency.
Why does he say “may?” If “raising the minimum wage lowers employment, and ends up excluding low-wage workers from employment prospects,” it will “have adverse effects on both welfare and efficiency.” For that matter, why does he say “If?” Does Loungani not believe his own results?
Notice, by the way, that the results he gets accord with the consensus view among U.S. economists for the United States circa 1981.
HT to Mark Thoma.