Tuesday 10 March 2009

Experiments with the minimum wage

Most economists tend to reckon that increases in the minimum wage reduce job creation, but that small moves around current levels don't do very much one way or the other. So the usual reductio from those who really don't like minimum wages is to ask why we don't just double or triple them.

Well, Honduras has just come close! The minimum wage went up 1 January from $157 to $289 per month. Apparently, this follows a 2007 reduction in the minimum wage from $178 to $136 per month. A US State Department travel advisory warns against travel there: layoffs of about 15,000 workers have exacerbated rather serious previously existing crime problems.

It sounds like there's huge variation in the minimum wage in Honduras. Are any labour economists looking at this one? I don't know how binding minimum wage regulations are in Honduras (not binding in the sense of above-market, but binding in the sense of whether companies have to obey the law), or whether decent stats exist on employment, but it sounds like somebody could be doing some really nice checks on sensitivity of employment to minimum wage shocks that are a fair bit bigger than the rather small ones usually seen in the US. It would also be neat to check the elasticity of crime with respect to minimum wage rates.

HT: Kiwi Pundit.


  1. Do you know of anyone looking at the prospect of maximum wages: tying the maximum possible wage of any worker in the company to some multiple of the lowest paid worker in the company?

  2. Some folks have advocated such things, but I've never heard of an economist doing so. Economists would tend to say that such policies would drive out top talent.