Minimum wage

By Economist.com

THIS week the British government announced that, from October, the minimum wage will jump by 12p to £6.31 ($9.66) an hour. Britain’s low-paid workers will welcome the decision: the minimum wage, when adjusted for inflation and the purchasing power of sterling, has fallen over the last five years. The same is true for only a handful of countries (mostly on the periphery of the euro area). America is also looking to increase the federal minimum wage by 24%, potentially helping some 15m workers. No consensus exists among economists on the effects of a minimum wage. Initially they expected that fixing, and in many cases increasing, the price of low-skilled workers would decrease the demand for them, and therefore jobs. Yet some research suggests that a correctly set wage floor may have only a small negative effect on employment. It must be set carefully, though: too low and the effect will not be felt; too high and jobs will be lost. If the right balance is struck, it is suggested, then employers will save money elsewhere. Hiring costs, for instance, are likely to fall because minimum wages tend to lower employee turnover.