Economist Arin Dube and his colleagues have conducted influential research on the effects of the minimum wage in the United States. An accompanying video explains their methodology for measuring the policy's effects. One of their primary findings is that, on average, an increase in the minimum wage leads to higher income for poor workers.

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A central debate surrounding the minimum wage concerns its impact on employment. A common argument posits that compelling employers to pay higher wages will lead them to reduce their workforce, resulting in increased unemployment, particularly among low-skilled workers. However, empirical studies by economists present a more nuanced picture. These studies generally find that the positive effect on wages is significantly larger than any negative effect on jobs. The findings on employment levels are mixed, with some research indicating a small reduction in jobs, while other studies suggest a potential increase.

Debate: The Effect of Minimum Wage on Employment

To cite the ebook, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/.

To cite a unit, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/ Unit [unit number] (url).

CORE Econ - The Economy 2.0: Microeconomics

Arin Dube's Research on US Minimum Wage Effects

The wage-setting model demonstrates that when firms possess market power, a minimum wage can increase both employment levels and wage rates. This outcome occurs because the policy prevents firms from leveraging their power to suppress wages and employment. This theoretical conclusion is consistent with evidence from several practical studies on the effects of minimum wages.

Effect of Minimum Wage on Employment and Wages Under Employer Market Power

If a minimum wage is set at a level that exceeds the value of workers' productivity, it can lead to severe negative outcomes. In such a scenario, the firm would incur losses, potentially forcing it to either shut down its operations or lay off employees to cut costs.

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