Hello so I'm researching and going over the labor market and I heard about this theory (specifically from Thomas sowell) that a country that doesn't have any minimum wage laws can result or does result in lower unemployment rates due to the fact that a free market economy will due the job of balancing the supply and demand of the labor market for said job and pay accordingly relative to that scale.
Examples like Singapore and Sweden were given. However, when looking deeper I found that only TWO of the countries with NO minimum wage laws are in the top ten countries that have the lowest unemployment rates the rest of the 8 all have minimum wage laws.
Is there something I am missing? Is there other factors to note of or is this theory non existent. Thanks!
Does No minimum wage laws = Low unemployment rate?
byu/dillpickles432 inAskEconomics
Posted by dillpickles432
1 Comment
Sowell sticks to pop Econ books because he knows he can’t defend his views via any sort of peer review.
And the answer is that there is no answer.
Canonically, under competitive markets with little information asymmetries, minimum wages do cause unemployment (standard price floor). However, much of the literature has found small job loss from minimum wages hikes, or if they do find it, it’s among subgroups (youths, less educated, …). There’s also a large mass point of null effects.
https://www.aeaweb.org/articles?id=10.1257/pol.20180578
https://www.nber.org/papers/w32925
https://onlinelibrary.wiley.com/doi/full/10.1111/labr.12263
Beyond that, minimum wages can increase employment (under non competitive markets, such as a monopsony). It eliminates the inefficiencies from this type of market. However, these markets are likely limited and have high concentration.
https://www.aeaweb.org/conference/2024/uploads/powerpoint/tHKQ6fhd
https://www.restud.com/1511-2/
LASTLY, let’s go back to the potential for null effects I mentioned earlier. Unemployment is but one margin businesses can (and do) use to pass through minimum wage hikes. These include;
Reducing hours worked; reducing non wage benefits; higher prices for consumers; less training; eating the loss in profits; …
There is evidence that businesses do use these, but there is no consistent reason businesses choose one over the other.