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The international experience of minimum wages in an economic downturn
[The tail of two countries: minimum wage and employment in France and the United-States]

Author

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  • Peter Dolton
  • Chiara Rosazza Bondibene
Abstract
What should governments do with the level of the minimum wage (MW) in times of recession? In an economic downturn when most workers face falling real wages is it appropriate to let the MW fall or are the positive effects of the MW on inequality enough to justify its uprating – and if so what might be the consequences on a country’s employment level? This paper reports new estimates of the employment effects of the MW by focusing on the recessionary experiences across countries. Using international data we exploit: cross-national variation in the level and timing of the MW uprating and the exact timing of the recessionary experiences in different countries with a panel data set comprising 33 OECD over the period 1971–2009. Our panel data allow us to differentiate the effect of MWs on employment in periods of economic downturn as well as periods of economic growth. We also account for institutional and other policy related differences that might have an impact on employment other than the MW. We find that the answer depends on whether one considers adults or young people, and to some extent, on what measure of the MW is considered. The answer is also somewhat sensitive to whether one considers that the MW level is a choice option of the government which is inextricably interrelated to the determination of employment – that is, the extent to which the MW is endogenous. Using a ‘political complexion of the government’ instrumental variable (IV) we find that the MW only has a negative impact on youth employment. This leaves each government with the dilemma of raising the MW and reducing inequality or increasing the MW and accepting that this will reduce employment levels amongst young people and those on the margins of work.— Peter Dolton and Chiara Rosazza Bondibene

Suggested Citation

  • Peter Dolton & Chiara Rosazza Bondibene, 2012. "The international experience of minimum wages in an economic downturn [The tail of two countries: minimum wage and employment in France and the United-States]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 27(69), pages 99-142.
    • Handle: RePEc:oup:ecpoli:v:27:y:2012:i:69:p:99-142.
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    File URL: http://hdl.handle.net/10.1111/j.1468-0327.2011.00278.x
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    Citations

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    Cited by:

    1. Jonas Feld, 2024. "Minimum wages and labor mobility in the European Union," French Stata Users' Group Meetings 2024 04, Stata Users Group.
    2. Richard Dickens, 2023. "How are minimum wages set?," IZA World of Labor, Institute of Labor Economics (IZA), pages 2112-2112, September.
    3. Maria Marimpi & Pierre Koning, 2018. "Youth minimum wages and youth employment," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-18, December.
    4. Dolton, Peter & Bondibene, Chiara Rosazza & Stops, Michael, 2015. "Identifying the employment effect of invoking and changing the minimum wage: A spatial analysis of the UK," Labour Economics, Elsevier, vol. 37(C), pages 54-76.
    5. Philipp Berge & Hanna Frings, 2020. "High-impact minimum wages and heterogeneous regions," Empirical Economics, Springer, vol. 59(2), pages 701-729, August.
    6. Addison, John T. & Blackburn, McKinley L. & Cotti, Chad D., 2013. "Minimum wage increases in a recessionary environment," Labour Economics, Elsevier, vol. 23(C), pages 30-39.
    7. Peter Dolton, 2012. "The administration and impact of a national minimum wage: lessons for Germany," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 45(3), pages 201-208, December.
    8. Chletsos, Michael & Giotis, Georgios P., 2015. "The impact of minimum wage on employment in an economic downturn using data from 17 OECD countries for the period 1985-2008," MPRA Paper 61323, University Library of Munich, Germany.
    9. Oliver Bruttel, 2019. "The effects of the new statutory minimum wage in Germany: a first assessment of the evidence," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 53(1), pages 1-13, December.
    10. S. Laporšek, 2013. "Minimum wage effects on youth employment in the European Union," Applied Economics Letters, Taylor & Francis Journals, vol. 20(14), pages 1288-1292, September.
    11. Richard Dickens & Rebecca Riley & David Wilkinson, 2015. "A Re-examination of the Impact of the UK National Minimum Wage on Employment," Economica, London School of Economics and Political Science, vol. 82(328), pages 841-864, October.

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