First, employers substitute away from the now more expensive labor and toward other inputs such as capital. Second, because costs are higher with this new input mix, product prices rise, which further reduces labor demand. These two effects lead to lower employment— L mw in Figure 1. Of course, this model oversimplifies. One issue is that workers have varying skill levels, and minimum wages are unlikely to matter for higher-skill workers. Employers will substitute away from less-skilled workers toward more-skilled workers after a minimum wage increase.
The employment declines might not appear to be large, even if the disemployment effect among the least-skilled workers is strong. This is relevant from a policy perspective. The minimum wage is intended to help the least-skilled workers. If their employment declines substantially i. A more fundamental challenge to the competitive model is that it is simply the wrong model. These frictions imply that when an employer hires another worker, the cost of existing workers also increases.
As a consequence, market-determined employment can fall below the economically efficient competitive level. Moreover, in the monopsony model, a minimum wage can sometimes lead to higher employment. Economists describe the effect of minimum wages using the employment elasticity, which is the ratio of the percentage change in employment to the percentage change in the legislated minimum wage. Through the s, many early studies of the employment effects of minimum wages focused on the US.
Limited evidence from the s challenged this early consensus, suggesting that employment elasticities for teenagers and young adults were closer to zero. But subsequent research, using more up-to-date methods for analyzing aggregate data, found stronger evidence of disemployment effects, in line with the earlier consensus.
In the early s, a second, more convincing wave of research began to exploit emerging variation in minimum wages across states within the US. Such variation provides more reliable evidence because states that increased their minimum wages can be compared with states that did not, which can help account for changes in youth employment occurring for reasons other than an increase in the minimum wage.
A related literature focuses on specific cases of state minimum wage increases. This case study approach offers the advantage of limiting the analysis to include one state where the minimum wage increases and another very similar state that is a reasonable comparator. Unfortunately, these results do not necessarily apply in other states and at other times.
An extensive review of this newer wave of evidence looked at more than studies of the employment effects of minimum wages, assessing the quality of each study and focusing on those that are most reliable [1]. Studies focusing on the least skilled were highlighted, as the predicted job reduction effects of minimum wages were expected to be more evident in those studies.
Reflecting the greater variety of methods and sources of variation in minimum wage effects used since , this review documents a wider range of estimates of the employment effects of the minimum wage than was found in earlier—predominantly time-series—studies. Nearly two-thirds of the studies reviewed estimated that the minimum wage had negative although not always statistically significant effects on employment.
Only eight found positive employment effects. In particular, the studies focusing on the least-skilled workers find stronger evidence of disemployment effects, with effects near or larger than the consensus range in the US data. In contrast, few—if any—studies provide convincing evidence of positive employment effects of minimum wages. Two recent meta-analyses challenge this conclusion [2] , [3]. These analyses suggest that averaging across studies points to an estimate near zero.
However, averaging across estimates from studies of minimum wage effects, as meta-analyses do, is problematic. First, the population studied varies; this and other factors can influence how binding the minimum wage is. This leads to variation in estimated effects, for which there is no reason to simply average. Second, meta-analyses often assign more weight to estimates that are more statistically precise [3] , even though the most rigorous empirical methods are likely to be less precise because of more rigorous research designs.
And yet, it is the studies that use the most rigorous methods—if valid—that should receive the most if not all the weight. Thus, attention should be paid to the best studies; even if researchers do not yet agree on which studies are best, it is more meaningful to try to resolve this question than to mechanically average across existing estimates in the literature. According to one view, minimum wages increase the cost of labour above the marginal productivity of low-paid workers and thus prices them out of the market.
Keynesian macroeconomics suggests that employment may increase if minimum wages lead to higher domestic consumption and aggregate demand.
See our summary on employment effects in different economic theories Empirical evidence Empirical findings are varied, country- and time-specific, and also depend to some extent on the type of data and methods that are used. Workers whose hourly wages are between the proposed minimum and that amount plus 50 percent of the increase in the federal minimum above their previously applicable federal, state, or local minimum wage. Only some of those workers would have increased earnings.
Range of likely outcomes. Real family income. Before-tax family cash income primarily earnings but also unemployment compensation, cash benefits from public assistance programs, and other forms of income , expressed in dollars. Changes in real family income include increases in earnings for workers receiving a higher wage, decreases in earnings for workers made jobless, losses in income for business owners, and decreases in purchasing power because of increases in prices.
Subminimums for teenagers and disabled workers. CBO continually seeks feedback to make its work as useful as possible. Please send any comments to communications cbo. Jeffrey Kling and Robert Sunshine reviewed it, Christine Browne edited it, Casey Labrack developed it, and Annette Kalicki integrated it into the website and prepared it for release.
Minimum Wage [? In this interactive tool, users can: Leave the subminimum wage unchanged, Increase it by varying amounts each year until it reaches 50 percent of the regular minimum wage, or Increase it by varying amounts each year until it matches the regular minimum wage.
Year the Specified Increase Would Be Fully Implemented Like previous increases in the minimum wage, the options presented here would take a number of years to be fully implemented.
Further Adjustments to the Minimum Wage Indexing the minimum wage means automatically adjusting it after it reaches the target amount. In this interactive tool, users can: Leave the minimums unchanged after the end of the phase-in period; Index minimum wages to the consumer price index CPI , a common measure of the cost of living; or Index minimum wages to median hourly wages. Effects on Employment, Income, and Poverty Note: Where an asterisk appears for a value, it represents an amount that is not zero but would round to zero.
The Effects on Income How would increasing the minimum wage affect family income? Uncertainty and Other Effects How certain are these outcomes? Definitions Directly affected workers. April 5, February 8, July 8, April 22, February 18, In line with advanced technology such as fully automated machines and the spread of online platforms, the economic system transforms itself to result in a vast array of work such as self-employment, temporary jobs, and new kinds of work relationship emerging in the online gig economy Cahuc, In Myanmar, automation and artificial intelligence are gradually adopted in the manufacturing sector.
This study hypothesized effects of capital substation on overall employment and also based on type of sector, type of ownership, and population size. This paper applied a panel data from the World Bank Enterprise Survey collected for Myanmar across five major industrial urban sectors in and According to World Bank , enterprise surveys target a sample consisting of longitudinal panel observations and new cross-sectional data.
The survey was collected from 1, enterprises, including manufacturing enterprises, retail businesses, and other services. The selected enterprises categorized into micro-business, small businesses, medium enterprises, and heavy industries.
This panel data structure is cross-sectional and time-series, which lends a unique advantage to controlling individual and time-invariant specific unobservable effects, as well as removing some omitted variable bias that may arise from the correlation of the error term and the explanatory variables Wooldridge, This study applied the dependent variables including log of the number of full-time employment and part-time employment, log of the number of female employment, and log of the net book value of machines to evaluate the causal relationship between change in employment and capital substitution due to minimum wage implementation.
Independent variables include the effect of minimum wage policy intervention, type of sectors such as manufacturing and service, type of ownership including domestic ownership, joint venture, foreign ownership, population size where the observed enterprises are located, and difference in number of full- time workers during and Descriptive statistics of applied variables are summarized in Table 1.
This study applied fixed-effects regression as an estimation method to run panel data. As defined Arellano, , fixed-effects regression is applied to observe the causal relationship between a vector of observable variables and a dependent variable by allowing one to control for time-invariant unobserved individual characteristics that can be correlated with the observed independent variables. The explanatory variable is the minimum wage MW that applies to each employment in the enterprise i and year t.
The choices of control variables may include the numbers of enterprises i and time t effects. This model is typically estimated using data for workers in enterprises for which the minimum wage is more likely to be binding. The inclusion of the dummy variables reduces the potential bias from unmeasured specific time-invariants.
Vectors X it and X kt contain independent variables, including minimum wage policy intervention, type of sector, type of ownership, and population size, respectively. A Hausman test Hausman, was run to confirm the superiority of a fixed-effects model over random effects and to determine if there is a correlation between the unique errors and the regressors in the model.
Therefore, the fixed-effect model is applied in this study. First, the results showed that the minimum wage policy intervention does not show significant. In FE model, the policy intervention reduces full-time employment in the manufacturing sector more than in the service sector but insignificant. This suggests the positive impact of the minimum wage-setting process and minimum wage enforcement in creating a business-friendly environment, which in turn attracts more foreign investors to the country.
Myanmar Garment Manufacturers Association MGMA, reported that it gained more than new members during and , and most of them were foreign companies as well as garment producers that tend to supply foreign markets. Looking at the employment effect of minimum wage policy on full-time workers based on population size with a region with a population of over 1 million, the results are inconsistent across the estimations of three models. The results of the employment effect based on type of sector showed differently.
Part-time employment in the manufacturing sector decreases by - 3. In the FE model, part-time employment in the manufacturing sector increases by 7. The results for the part-time employment effect based on type of ownership showed significant and positive.
Therefore, effects of part-time workers increase in joint venture enterprises than that of domestic owners after minimum wage policy implementation.
In foreign-owned enterprises, part-time employment decreased by Looking at the employment effect of minimum wage policy on part-time workers based on population size in a region with a population of over 1 million, the results are consistent across the estimations of the three models.
The results suggested that enterprises from large cities resist the effect of minimum wage policy implementation, and enterprises with smaller investment and lack of better market facilities experience a greater adverse impact than larger ones. The results in Table 4 showed the effect of the policy on female employment. The results also showed that the effects of the minimum wage policy intervention on female employment were significant and positive.
The results for population size showed that 50, to , reduced female workers more than firms from the more populated region.
Table 5 showed how much additional capital investment of the enterprises as well as the substitution of machines and equipment for the labor force affect overall employment due to the impact of minimum wage policy. The effects based on type of sector were not significant, while the effects based on types of ownership showed significant.
In terms of type of ownership, where the control group is those firms fully owned by domestic entities, the effect of capital substitution increases the overall employment of joint ownership and foreign full ownership more than that of domestic full ownership.
This study also aimed to set out a policy framework examining the impact of Myanmar's minimum wage policy on jobs. Based on past literature, hypothetical and statistical, the introduction or increase of statutory minimum wages does not have a major systematic effect on employment, positive or negative.
The issue of female employment was also addressed. Additionally, this study also aimed to investigate the effects of capital substitution on employment due to implementation of the minimum wage. This study found that effects of this minimum wage policy on full-time employment in the manufacturing sector more than in the service sector. The empirical results in regard to type of ownership indicate that full-time employment of joint ownership and foreign full ownership showed greater increase than that of domestic full ownership.
Thus, it may serve as an attraction to boost foreign investments. Regarding full-time employment depending on population size, the results showed that the minimum wage policy results in disproportionate effects on full-time employment based on OLS and RE by decrease in the less populated area compared to a much more populated area.
In addition, the findings showed that effects of an introduction of the minimum wage causes part-time workers to lose their jobs significantly. However, the part-time employment of Joint Venture enterprises increases compared to domestic-owned enterprises.
Concerning female employment effects, the empirical results show that the numbers of female workers increase at a statistically significant level. Additionally, firms located in regions with a population size between 50, to , reduce female workers more than firms from the more populated regions. On the whole, the empirical results presented in this study suggested that employment for enterprises from cities with lower populations experience the adverse impact of minimum wage policy implementation more than larger enterprises.
The findings also indicated that legislation of the minimum wage brings about a slight decrease in the labor force because of capital substitution such as machinery and technology.
This effect of capital substitution indicated heterogeneity by population size and type of ownership and the overall employment in joint ownership, and foreign ownership, compared to the reduction of employment in enterprises from region with lower populations. Also, the evidence revealed that there is a need of low-skilled workers being replaced by machines and technology in the future.
If wages are rising and prices of equipment and technology have dropped, firms will search for a cost-effective strategies by adopting advanced technologies. Especially, the agricultural sector of Myanmar should be better promoted with provision of farm machinery and services to improve agricultural activities. The results of this study confirmed that the minimum wage policy is necessary solution to increase efficiency and productivity of enterprises. Therefore, this study implied that government of Myanmar should develop proper policies and promotion regarding wage policy.
The unexpected negative effects of the minimum wage implementation should be also reduced by appropriate measures to be more positive in terms of employment effects Choi, Therefore, the introduction of the minimum wage policy should resolve the concerns of employees and firms, while it will foster proper competition for the balance of labor market. Del Carpio and Pabon suggested that whenever changes are made in a minimum wage policy, this in turn has damaging effects on the most vulnerable workers.
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