Minimum wages: Employment and welfare effects, or why Card and Krueger were wrong

Abstract

Many qualified analysts are unconvinced by the case advanced by US economists Card and Krueger (C and K) that, within limits, the employment effects of raising the minimum wage will be zero or positive. Indeed, examinations of C and K arguments and studies by such analysts reveal many flaws and generally support the conventional view that minimum wages reduce employment. Using the minimum wage to assist low wage earners is also an inefficient and ineffective welfare measure as higher income groups benefit from it more than others. Eliminating the AIRC’s role in determining the minimum wage and moving to a market-determined wage could be made more politically acceptable if accompanied by some form of additional social security assistance linked to and encouraging work for low wage earners in low-income households, and protecting their living standard. To avoid any additional budgetary cost, such assistance could be financed by reducing the large social welfare benefits currently provided to higher income groups.