It was the year 1992 when the State of New Jersey decided to raise the minimum wage, while neighboring Pennsylvania chose not to touch it. The economists David Card and Alan Krueger compared the impact of the measure on fast food restaurants in both territories and came to the conclusion —contrary to the prevailing thesis until then— that an increase in minimum wages does not destroy employment. Three decades after the publication of the study, which became a reference and made its authors famous, Card received the Nobel Prize in Economics for his research in the fields of work, immigration and inequalities.
Born in 1956 on a farm in the Canadian province of Ontario, Card has been a professor at the University of California-Berkeley for a quarter of a century, to which he continues to go every day by bicycle to avoid the thick traffic of San Francisco Bay. . He recently visited Bilbao to participate in a meeting (WorkInLan Summit) on the future of employment organized by the Basque Government and the Iseak Foundation and spoke with Business by videoconference.
Ask. His visit to Spain coincides with an 8% rise in the minimum wage. What do you think?
Answer.I know that the minimum wage has gone up significantly, but I don’t have an opinion on it. What does surprise me is that it is so low despite the rises. For a person who works full time it barely costs eight euros an hour.
P. Is raising the minimum wage detrimental to employment?
R.. Since Krueger and I published our study 30 years ago, most of the rigorous analyzes that have been done on the subject, with the same methodology and more data sources than ours, show that it has neither negative nor positive effects. An interesting experiment was the introduction of the minimum wage in Germany in 2016. Some critics predicted that it would have a significant effect on employment levels, but from what I understand it has not.
Q.Why are companies so reluctant to upload it?
R. Because they anticipate that they will have to pay higher salaries and that if they do not cut jobs they will have fewer benefits. Data from the restaurant sector in
The US indicates that increases in the minimum wage are almost entirely passed on to customers. Something similar happens in other sectors. The owner of a store in a shopping center, for example, will try to negotiate a reduction in rent with the owner of the premises, and in agriculture it can lower the price of land. Raising the minimum wage does not create or destroy value, it only redistributes it. The people who lose out complain, and the people who win are in favor. It makes all the sense.
Q.What positive and negative effects on the economy does a rise in the minimum wage have?
R.On the downside, even if jobs are not destroyed in the short term, it could potentially reduce incentives for investment, so employment prospects may worsen in the long run. Some companies may stop creating jobs that they would otherwise create. On the plus side, big business has gained a lot of market power in the last 25-30 years, and raising the minimum wage can offset that distortion in the economy.
Q.Do low wages have to do with the discontent of broad sectors of the population and the rise of populism?
R.. The standard of living for an average worker in the US today is very similar to what it was in 1980. You now have some things you didn’t have then, such as a mobile phone or internet connection, which may lead you to think that you live better, although don’t have money to dine in a restaurant. A more realistic view is that things are not going well for the 75%-80% of the population with the lowest income, unlike the 1% or 2% with the highest incomes. It happens in many countries, but in the US the difference is extreme. Part of populism has to do with inequalities, but many low-income people are enthusiastic supporters of Donald Trump, a billionaire. The Republican Party, which is the populist party in the US, is not exactly in favor of income redistribution. It’s more on cultural issues.
Q.The difference in salaries between top executives and employees of the same company continues to grow. In the US the ratio today is 400 to 1, while in 1960 it was 20 to 1. What has happened?
R.Some people think that it is the result of market forces; In other words, a highly talented CEO is worth much more today than in 1960 because he is capable of leading a company that creates enormous value, like Apple. An alternative view is that the number of large multinationals is relatively small and that the world population is two to three times as large today. China and India have entered the modern economy, increasing the number of workers at the bottom of the wage scale. A third interpretation is that the people who run the big companies have organized the pay committees in such a way that they guarantee themselves big salaries.
Q.Since the outbreak of the pandemic, there has been a lot of talk about the great resignation or great resignation: people who leave their job and go home. What’s going on?
R.Job abandonment levels – the possibility of someone voluntarily leaving their job – had been on the decline for many years and we were at historically low numbers before the covid. With the pandemic they have increased again, but nothing similar to what we had in the sixties or seventies. Most of the people who have quit their jobs in recent times have done so to go to better jobs, especially in services. I think the great resignation has been greatly exaggerated.
Q.Some companies complain that they cannot find workers…
R.. We economists always say that if there are a lack of workers, it is necessary to raise salaries. It seems inconsequential to protest the increase in the minimum wage and at the same time complain that you don’t have people to work with. Perhaps what is happening is that, simultaneously, companies have vacancies and do not want to raise salaries.
Q.You have also studied the impact of immigration on wages. What conclusions have you reached?
R.I haven’t studied the subject for more than 10 years, but my previous work and other more recent ones that I know of is that migratory movements do not have a noticeable effect on employment or on the wages of native workers with similar qualifications to newcomers.
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