BLOG CALL: Inequality & Minimum Wage
Dear Friends and Colleagues,
We are issuing this “Blog Call” to help answer the following question:While the IMF formulates its new position on inequality, where does it stand on minimum wage?Blogs will be accepted on a rolling basis untilJune 15(no more than 1500 words). All blogs will be posted on New Rules website, included in our reports/updates and shared with the IMF.
The IMF’s recent Art IV recommendation to Germany sparked this question (see below):
7. The new nationwide minimum wage will help reduce growing wage inequality, but it risks exacerbating unemployment in some regions. Expert estimates suggest that the proposed minimum wage will be binding for about 20 percent of workers in some federal states where unemployment is already relatively high. While the employment effects of changes in minimum wage regulation are notoriously difficult to predict, sizable adverse effects in these areas could materialize. Decisions by the to-be-created commission on the future level of the minimum wage should take these employment effects into account and give adequate consideration to the interests of those not well represented by employers’ and employees’ associations. In addition, alternative ways to achieve income redistribution could usefully be explored. http://www.imf.org/external/np/ms/2014/051914.htm
Two sides of the coin:
1. IMF’s recent paper “Redistribution, Inequality and Growth” finds that lower net inequality is good for sustainable economic growth. IMF acknowledges that Germany’s new minimum wage will reduce inequality. Therefore, simple logic tells you that a minimum wage would support sustainable economic growth.
2. However,another view is that wages increases will make it more difficult for employers to pay workers, which may result in higher unemployment. IMF advice agrees that there are adverse impacts to minimum wage increases, but that these are “notoriously difficult to predict.”
The IMF seems to be stuck in between these two arguments.However, the recent recommendation to Germany (as well as to other countries) demonstrates that the IMF tends to lean toward the second position: increasing minimum wage is harmful for growth
We want to know your views.Please let us know if you have any questions.
Nathan Coplin, Deputy Director
New Rules for Global Finance
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